Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

Oral Answers to Questions

EMPLOYMENT

Health and Safety

Mr. Lewis Stevens: asked the Secretary of State for Employment what European Commission directives on health and safety the Government expected to implement in the current year; and whether he will make a statement of the benefits of United Kingdom membership of the European Economic Community.

The Minister of State, Department of Employment (Mr. John Selwyn Gummer): This year the Government expect to implement some 11 directives in the health and safety sector. Britain gains considerably by common health and safety standards through the Community. We avoid unfair competition and are given easier access to markets which could otherwise be denied us.

Mr. Stevens: I thank my hon. Friend for that reply and welcome the impact that the EEC is having on this sector. Will he ensure that a reasonable amount of time is given to employers to implement these procedures before they come into force?

Mr. Gummer: We must do everything possible to enable employers to come to terms with the changes that we make. The changes are to their advantage, because they will be able to sell goods in the rest of Europe and keep jobs.

Mr. Penhaligon: What is the present position in the European negotiations vis-a-vis the regulations to reduce noise levels?

Mr. Gummer: Discussions are continuing, and there have been reports from specialist committees which will have to be taken into account. I hope that we shall come to a more rapid conclusion than at one point seemed likely.

Sir Anthony Meyer: In a trade area, such as the EEC, is it not essential to have effective enforcement of common health and safety standards, otherwise there will be gross distortions of trade?

Mr. Gummer: Not only that, but other countries are now following our rules in the EEC, which they would not if Britain were not a member of the Community.

Health and Safety Commission

Mr. Dixon: asked the Secretary of State for Employment if he will increase the funding of the Health and Safety Commission.

Mr. Gummer: The provision in estimates and cash limits for the Health and Safety Commission for 1984–85 is £2,695,000 above the cash limit for 1983–84.

Mr. Dixon: Is the Minister aware that that is inadequate? Is he further aware that in 1974, when the Health and Safety at Work etc. Act was passed, a promise was made to increase the inspectorate by 50 per cent. to cover the extra work created by the Act—a promise that was repeated in 1975 by the Minister's predecessor in a Tory Government? Why does he now talk about these cash limits when he knows that they are inadequate to carry out the job that the inspectorate is supposed to do?

Mr. Gummer: The resources for the Health and Safety Commission now are much more than they were under any Government whom the hon. Gentleman supported.

Mr. Lyell: Will my hon. Friend bear in mind that our representation on European committees on health and safety is thought to be rather limited at the moment, and that our manufacturers of health and safety equipment are losing out for that reason?

Mr. Gummer: If my hon. and learned Friend has any specific evidence of that, I shall be delighted to look into it. The resources provided for the Health and Safety Commission have enabled it to bring in a new system of monitoring where hazards lie. That means that we make much better use of the inspectorate that we now have. I understand that a number of inspectors are being recruited.

Labour Statistics

Mr. Madden: asked the Secretary of State for Employment what is the present percentage rate of unemployment; and what are the numbers involved.

Mr. Tinn: asked the Secretary of State for Employment what is the latest number of people unemployed; and how many of these are aged from 50 to 60 years.

The Secretary of State for Employment (Mr. Tom King): On 5 April the number of unemployed claimants in the United Kingdom was 3.108,000, at a rate of 13 per cent. The latest figure for those unemployed who are aged between 50 and 59 is 478,000.

Mr. Madden: Does the Secretary of State understand that in places such as Bradford, where 15 out of every 100 people are unemployed, there is precious little evidence of a sustained economic recovery and dismay that traditionally low pay has not resulted in job security and that relatively low inflation has not resulted in new jobs? Does he further understand that the smug complacency of Ministers and the Prime Minister about unemployment is stoking up anger and a sullen resentment, which the Government ignore at their peril?

Mr. King: I think that the hon. Gentleman will know that I take seriously, as any responsible Minister and hon. Member obviously does, the grave level of unemployment facing us and so many other countries in the Western world. The hon. Gentleman said that there was no evidence of any change, so let us look quickly at the figures. I note that there is a 10 per cent. increase in the number of people placed in work by jobcentres compared with the equivalent period last year. Obviously we need to go much further than that. The hon. Gentleman said that


there was not much evidence of new jobs. I welcome the figures that I was able to announce of 200,000 more jobs in the last three quarters of last year.

Mr. Tinn: We are all understandably depressed and anxious about the problems of the young unemployed, but is the Minister aware that it is important not to neglect or forget the older, middle-aged groups, often with heavy financial and family responsibilities? Is he aware of the heavy human impact of increasingly beginning to realise, as most of them are, that they will never work again? Time is not on their side. If he is aware of the wastage and loss of skills and experience involved in all this, may I ask what he proposes to do about it?

Mr. King: I would not wish to distinguish the relative position of misery faced by school leavers, young people, the middle aged or the elderly, because for everyone the scourge of unemployment poses very real difficulties. With inflation much lower, real signs of improvement in industrial performance and an increase in jobs in the country, we see the best prospect now for many years of starting to tackle those serious problems of unemployment which I should have thought the hon. Gentleman would share.

Sir Dudley Smith: Would my right hon. Friend care to comment on the extraordinary speech made yesterday by the Leader of the Opposition in which he alleged that my right hon. Friend had faked the unemployment figures, apparently in connivance with his officials?

Mr. King: I saw those comments. I understand that we are about to have some elections this week. That, I think, is the only possible explanation that one can give. It was a most disgraceful attack on professional statisticians in my Department who are responsible for producing the figures and who have given the most clear evidence—[Interruption.] I suggest that hon. Members, instead of shouting, if they want know the truth, should look at the Employment Gazette and see the proper basis on which those figures are produced. I suggest that the Leader of the Opposition should justify that disgraceful allegation against professional people, or shut up.

Mr. Wrigglesworth: I have just had a call that I wish I had not had, because, sadly, I was told that another suicide had taken place in my constituency — not the first on Teesside—as a result of unemployment. Is the Secretary of State aware that, behind the figures that we discuss endlessly in the House, there are many human tragedies of this nature, some not as extreme as this, but sad? Will he and his colleagues give much higher priority to the question of unemployment, and give to those who are suffering from this depressing and sad situation more hope than they have at present?

Mr. King: I hope that the hon. Gentleman will accept and recognise from the answers that I have given that I fully accept the appalling difficulties and tragedy that many people face, particularly in the areas of highest unemployment. We know that there are pockets where that level is intolerable. There is no point in seeking to allocate blame. I am conscious that the hon. Gentleman represents a steel constituency. I wonder what responsibility is accepted by Opposition Members who fought against the one intelligent attempt to restructure the steel industry in 1972 and 1973, and how the story might have been very different if that had been acted on. None the less, the

situation is serious. We believe that the strengthening of the economy gives us our best prospect of offering hope to people such as those whom the hon. Gentleman represents. We recognise the serious and difficult problems that they face.

Mr. Roger King: Does my right hon. Friend agree that, in terms of the number of people employed, this country is doing relatively well compared with other industrial countries? Will he consider issuing figures for the total in work, in parallel with the other monthly figures?

Mr. King: It is not possible to publish them at the same time, but the published figure of 200,000 more people in work in the last three quarters of last year is our best estimate. This country provides significantly more employment for its people than the vast majority of other countries, partly because many more women choose to work. We believe that that is the basis on which we must seek to expand the economy, and we are encouraged by the present progress in the creation of new jobs.

Mr. Jim Callaghan: Is the Minister aware that, according to the 1981 census, unemployment among males between the ages of 20 and 45 on two large overspill estates in my constituency—Langley and Darnhill—was 43 and 33 per cent., respectively? Three years have now passed and the figures have worsened. What help does the Minister intend to give those unfortunate men?

Mr. King: The hon. Gentleman will have heard my earlier answer in which I referred specifically to serious pockets of unemployment of the type that he mentioned that may exist within a region or a travel-to-work area with considerably lower average figures. There is no quick quack solution to the problem. The solution must come from a real improvement in our economic performance. I take encouragement from the improvement in our competitive position and the very significant improvement in our economy. The Government have introduced a number of measures to assist the situation. The enterprise allowance scheme has proved a great success. There is also the community programme and the job release scheme. All those measures are further attempts to help in a serious situation.

Mr. Holt: Further to the question asked by the hon. Member for Stockton, South (Mr. Wrigglesworth), will my right hon. Friend comment on the fact that British Steel has shed 50 per cent. of its labour force compared with four years ago, but that the entire financial saving has been swallowed up by the rate increases imposed by Cleveland council, which this year was more than 25 per cent.?

Mr. King: I have made one or two speeches on the need for economy and restraint in rate demands. Anyone whose activities have any bearing at all on the costs and competitive position of industry has a responsibility in this matter. I hope that local authorities will realise that it is vital not to add unnecessary burdens to industries which are now starting to succeed, but which must remain competitive in costs if they are to win through.

Mr. John Smith: Will the Secretary of State explain why, whenever there is a small reduction in the number of unemployed, the Government claim credit for the success of their policies, but whenever there is a massive increase they blame it on forces outwith their control?

Mr. King: I do not think that the right hon. and learned Gentleman can make that charge about my statements. The


latest unemployment figures show a very small fall in the seasonally adjusted totals and a small reduction in the headline totals, but it is too early to tell whether the improvement in the economy will move fast enough to cope with the additional 160,000 people seeking work this year and the undoubted improvements in productivity also being achieved. That is the great challenge that we face.

Sweatshops

Mr. Janner: asked the Secretary of State for Employment what representations he has received concerning the operation of sweatshops in the city of Leicester.

Mr. Gummer: The first representations that I received on the subject were from my hon. Friends the Members for Leicester, South (Mr. Spencer) and for Leicester, East (Mr. Bruinvels). Since then the hon. and learned Member has made representations.

Mr. Janner: Is the Minister aware that his reply to my Adjournment debate was regarded in Leicester as inadequate and useless? Unemployment in some parts of my constituency is 60 per cent. and that has led to people accepting work in unhealthy and dangerous conditions of slave labour for pay which is a disgrace? What solution, if any, can the Government offer other than vituperation in reply.

Mr. Gummer: Apart from that accusation, I know that the hon. and learned Gentleman was dissatisfied with the coverage that he received in the Leicester Mercury. That was not what the press said about these matters. I very much hope to accept my hon. Friends' invitation to visit Leicester to look for myself at the issues that have been raised by my hon. Friends. I am very sorry that the hon. and learned Gentleman did not follow his own message — that this was not a matter for party political vituperation.

Mr. Peter Bruinvels: Will my hon. Friend note that, so far as I was concerned, his statement on Wednesday was well received in Leicester. Will he confirm that all the allegations outlined in the letter to the Leicester Mercury, as well as in representaions by myself and my hon. Friend the Member for Leicester, South (Mr. Spencer), will be investigated?

Mr. Gummer: I shall see that they are investigated most carefully, and I hope that the Leicester Mercury will be able to provide me with the evidence necessary for them to be investigated. I repeat that this issue is far too important to be brought into party political argument.

Job Creation

Mr. James Hamilton: asked the Secretary of State for Employment when he next intends to discuss methods of reducing unemployment with European Economic Community Employment Ministers.

The Minister of State, Department of Employment (Mr. Peter Morrison): We shall be discussing employment matters of mutual concern at the Standing Employment Committee on 10 May and the Labour and Social Affairs Council on 7 June.

Mr. Hamilton: What is the Government's reaction to the proposals of the European Trade Union Confederation

for co-ordinated increases of 1 per cent. of GNP in non-wage public expenditure by the EEC and other Western industrial countries, which is calculated to create 5 million new jobs? If so, will the Minister now make a statement?

Mr. Morrison: As the hon. Gentleman will appreciate, all our consultations with our European colleagues are geared to an improvement in employment. For employment in the United Kingdom to be improved, as the hon. Gentleman will understand perfectly well, cost-competitiveness is extremely important.

Mr. Forth: Does my hon. Friend agree that the answer to unemployment across the European Community lies not in further ill-conceived methods on yet another level of public expenditure but in trying to do away with the non-tariff barriers to trade that still exist in the Community, thereby allowing a freer flow of goods and competition, which will result in increased employment?

Mr. Morrison: I agree with my hon. Friend. As he will know from his personal experience in Europe, many of our European colleagues will be interested to hear about the containment of public expenditure in the United Kingdom and its effect on employment.

Mr. Boyes: Is the Minister aware that, tragically, 1,000 youngsters in my constituency have not had a job since leaving school, yet when the Foreign Secretary has reported on recent Council meetings he has never mentioned unemployment? Will the Minister ask his right hon. Friend the Secretary of State to have an urgent meeting with the Foreign Secretary and tell him that unemployment should be discussed at any future Council meetings?

Mr. Morrison: The hon. Gentleman will appreciate that my right hon. and learned Friend the Foreign Secretary, my right hon. Friend the Secretary of State, my hon. Friend the Minister of State, my hon. Friend the Parliamentary Under-Secretary of State and myself, when in Europe, are concerned about employment prospects. I am just as concerned as the hon. Gentleman about the 1,000 youngsters in his constituency, but he will be aware that the youth training scheme—a major programme—is to a great extent supported by the European social fund.

Mr. Dykes: Does my hon. Friend expect the ESPRIT programme to have a beneficial effect on employment over the next few years—if so, what will the figures be—or is the programme too small to have that effect?

Mr. Morrison: On balance, we expect it to have a beneficial effect.

Mr. John Smith: Does the Minister appreciate that the point made by my hon. Friend the Member for Motherwell, North (Mr. Hamilton) was that the European Trade Union Confederation has put forward a specific proposal for an increase of 1 per cent. in non-wage public expenditure by each EEC country as a way of stimulating growth within the EEC? Is that not the sort of sensible proposal that the Government ought to support instead of trying to back down at the Dispatch Box?

Mr. Morrison: The right hon. and learned Gentleman will, I am sure, appreciate that that is precisely what his Socialist counterparts in France did, and the results have not been good for the French economy or employment prospects. I therefore hope that he will understand my reservations.

Mr. Needham: Does my hon. Friend agree that in discussing these matters with his European colleagues his task is not made easier when the Scottish miners are not delivering sufficient coal to keep the Ravenscraig steelworks going?

Mr. Morrison: My hon. Friend makes an important point. I am sure that those who work at the Ravenscraig plant, as well as those who work at other steelworks throughout the country, will carefully bear in mind what he has said.

Labour Statistics

Mr. Baldry: asked the Secretary of State for Employment what is the estimated increase in the work force between the present time and 1989.

The Parliamentary Under-Secretary of State for Employment (Mr. Alan Clark): The civilian labour force, which includes people seeking work as well as those in work, is projected to increase by 458,000 in Great Britain between mid-1984 and mid-1989.

Mr. Baldry: As there was an increase of 200,000 people in work between March and December last year—the biggest increase during the past five years—does my hon. Friend agree that taking the unemployment figures in isolation does not do justice to the efficacy of the Government's strategy in tackling unemployment, especially as Britain's work force, for demographic reasons, is rising rapidly?

Mr. Clark: I entirely agree with my hon. Friend. We need not be apprehensive about the increase in the work force. There is no doubt that rising real incomes and changing consumer tastes will generate jobs in new sectors that could not have been predicted two or three years ago. It is from those sectors that, in the fullness of time, the impact on unemployment figures will be seen.

Mr. Haynes: Is the Minister aware that over the years every Government have looked at the work force and the way in which it grows and provided for that? Are not this Government sitting on their backside? They could not care less about the unemployment of those coming on stream for work. When will the Minister and the Department of Employment do something about jobs for youngsters and others in this nation?

Mr. Clark: I find it extraordinary that the hon. Gentleman, who attends every employment Question Time, should make such entirely unfounded accusations. He knows perfectly well that the youth training scheme is available for every youngster leaving school who wishes to take advantage of it. A wide variety of special employment measures take —2 billion of taxpayers' money each year.

Mr. Budgen: Is my hon. Friend aware that, according to the west midlands low pay unit, so-called sweatshops have now become major new employers of labour in the west midlands? Does he agree that if the terms and conditions of employment are forced to be more advantageous to the workers, there will be a reduction in opportunities for employment?

Mr. Clark: Yes. The fixing of wages is a matter for employers and their work forces. Any attempt to interfere with that will put up costs and reduce employment prospects.

Mr. Barron: The estimated increase in the work force will not help to reduce the high unemployment levels. How does the Minister justify spending millions of pounds to keep people in work in the midlands coalfields when he is not prepared to spend the same amount on trying to get people back to work?

Mr. Clark: The hon. Gentleman knows that spending money to get people back to work has been attempted with varying degrees of failure by all the OECD countries during the past 20 years. The most recent example is that of the French, who tried it on an enormous scale but had to call off their experiment after 12 months.

Mr. Evans: What is the projected increase in unemployment between now and 1989, especially in manufacturing industry, if there is no change in the Government's policies?

Mr. Clark: The hon. Gentleman knows that there are never any projections for such figures. As I said earlier, there is every reason to believe that the generating of jobs in new high technology sectors and sectors brought about by changes in consumer tastes and the rise in real incomes will have the greatest impact on reducing unemployment.

Manpower Services Commission

Mr. Sims: asked the Secretary of State for Employment what is the role of the Manpower Services Commission's area manpower boards; and if he will make a statement.

Mr. Peter Morrison: The role of the Manpower Services Commission's area manpower boards is to advise the commission on the planning and delivery of its programmes at local level. Responsibility for decisions on these programmes rests with the commission and its staff.

Mr. Sims: I am grateful to my hon. Friend for that explanation. Is it true that recently the chairman of the commission overruled the Liverpool area manpower board? If so, why?

Mr. Morrison: As for the proposals that were put forward relating to the mode B1 provision of the youth training scheme, the Liverpool area manpower board was unable to reconcile itself with that proposition and, as a result, the chairman of the commission, particularly wearing his mantle as the accounting officer, saw fit to overrule, in my view, rightly.

Mr. Campbell-Savours: Have not the area boards been placed in an utterly invidious role in being required to select where the cuts should take place in community programmes, so having to distinguish between schemes in areas such as Cumbria? May we have an assurance that the Secretary of State is exerting every pressure on the Chancellor of the Exchequer to ensure an increase in community places in the next financial year?

Mr. Morrison: As the hon. Gentleman will appreciate, in the first year of the community programme Cumbria had more than the average share. I believe that that was right, and the hon. Gentleman and I have discussed the matter. It is right that the area manpower boards, with their local knowledge, should advise the commission on where they believe programmes should be instituted or, indeed, curtailed.

Mr. Batiste: Will my hon. Friend confirm that there has been considerable concern at the way in which some


area manpower boards have been exercising their judgment in relation to individual mode B1 schemes under the youth training scheme? What general criteria does he expect them to employ in making judgments on schemes?

Mr. Morrison: The important point for the manpower boards when judging what schemes are appropriate is to take into account the local needs of the youngsters concerned, having consulted the careers service. By and large—and I use that phrase advisedly—that is what they have been doing, and I am grateful for the work that they have done.

Mr. Dubs: Is the Minister aware that the London, south and west area manpower board of the MSC recently came out in Wandsworth in complete opposition to the proposed cuts in the mode B1 places on the youth training scheme? Is he further aware that that view of the area board has been ignored by himself and by the chairman of the MSC, and that there is united opposition in Wandsworth, covering both the Conservative and Labour parties, against the ridiculous cuts that he is proposing? Why is he singling out Wandsworth and the disadvantaged young people there for these cuts?

Mr. Morrison: The hon. Gentleman will be aware —because he and some of his colleagues came to see me about the situation in Wandsworth—that the matter has been looked at very carefully indeed. He will also be aware that when the board came to its decision about London, south and west, it did not particularly single out Wandsworth; it was concerned with mode B1 provision in that part of London, and that is why the decision to overrule was taken.

Mr. Bill Walker: Is there any truth in the statement that the area manpower board on Tayside is unhappy with the role that it is being asked to undertake? If so, what does my hon. Friend propose to do about it?

Mr. Morrison: I assure my hon. Friend that the role of all the area manpower boards is being looked at carefully by us and them in the light of the future provision of training, whether at the youth or adult end. That is right, and how it should be.

Mr. John Smith: Were the area manpower boards consulted before the MSC announced its proposals to cut back drastically on jobcentres and on the personnel and resources allocated to them? If an area manpower board concluded that those proposals were bad for the employment service in its area, what notice would anybody take of it?

Mr. Morrison: The right hon. and learned Gentleman will be aware that in the management proposals relating to the jobcentre network there is no cutback. Indeed, there is provision for an increase of between 100 and 200 outlets. That is the precise situation. The MSC looked at the matter carefully last week and I hear that the Secretary of State will be getting a considered view from the commission, which I gather is a united view, including the TUC commissioners.

Industrial Democracy

Mr. Pike: asked the Secretary of State for Employment when he next intends to discuss methods of improving industrial democracy with his European Community colleagues.

Mr. Tom King: Some aspects will be discussed at the forthcoming meeting of Ministers at the Council of Social Affairs on 7 June.

Mr. Pike: Does the right hon. Gentleman agree that it is important that there should be full discussion with the workers to ensure that we get the technological change in industry that is essential if we are to compete in the world? Does he further agree that our partners in the EEC have, in the main, accepted the Vredeling directives, and is it not time that the British Government also accepted those proposals? Does he think that 1 May would be an appropriate day for the Government to announce that they intend to move towards genuine industrial democracy?

Mr. King: I had thought that I was going to be able to agree completely with the hon. Gentleman's supplementary question. I believe profoundly in the importance of involvement and communication between management and workers. It is a clear sign of a successful company  when that involvement and communication operates effectively. However, I do not believe in imposing directives that put a straitjacket on the ways in which involvement and communication can be undertaken, Such directives would make inoperative some of the most successful operations in the United Kingdom in which consultation and communication are especially effective.

Dr. Mawhinney: Will my right hon. Friend draw to the attention of the CBI and other employers' organisations any shared participation schemes that operate within the EC, in the hope that they will be encouraged to advance industrial democracy in Britain by that means?

Mr. King: I take note of my hon. Friend's comments. He has introduced a useful ingredient. The steps taken by right hon. Friend the Chancellor of the Exchequer in his Budget should be extremely helpful in that respect

Mr. Evans: How do the Tory Government, who constantly pontificate about the alleged lack of democracy in trade unions, avoid the charge of hypocrisy if they reject even the modest proposals of the Vredeling directive on democracy in the workplace? Will the right hon. Gentleman confirm that if he vetoes the Vredeling directive he will do so for the rest of Europe apart from Britain?

Mr. King: As the hon. Gentleman knows, we have already legislated in one respect of the Vredeling directive in requiring every company—this requirement is not restricted to companies over a certain size—to publish in its report and accounts its activity and involvement in communication. That requirement was placed in the 1982 Act. My hon. Friend the Minister of State and I will be monitoring extremely carefully all company reports and accounts to ascertain how the involvement is being pursued. I was involved in communications in industry in the past and I believe that the most effective approach is the voluntary one. The hon. Gentleman can wrap himself up in legislation and directives if he wishes, but I want to see positive results within industry.

Labour Statistics

Mr. Clay: asked the Secretary of State for Employment if he will estimate the percentage of people over the age of 50 years who were unemployed on 1 May 1983 and have since then obtained a job.

Mr. Alan Clark: After making allowance for the effect of the 1983 Budget provisions, it is broadly estimated that in January about one third of claimants who were unemployed and aged 50 and over in April 1983 had ceased to claim benefit. The reasons why people cease to claim are not recorded.

Mr. Clay: Surely the Minister's answer demonstrates the true state of affairs that lies behind the empty propaganda that we have heard over the past 12 months from the Government Benches about an economic recovery. Two thirds of those aged 50 and over who were unemployed a year ago are still unemployed. What does the Minister think about someone over 50 years of age who is employed by a privately owned, opencast mine in Durham and is paid £25 a week for 12-hour shifts seven days a week? Does he agree that that form of vicious exploitation is increasingly the only opportunity for work that is open to those in the category that we are discussing? Is the Minister not ashamed that he has created this pool of cheap labour?

Mr. Clark: The figure that the hon. Gentleman has quoted for someone working seven days a week at an opencast mine in Durham seems to be dubious in the extreme, although I am not questioning his good faith in putting it to the House. Plainly, it is a matter for the employee and his employer and has nothing to do with the Government. The position of those in the labour market aged 50 and over is certainly a matter for disquiet. The best solution is for employers to re-examine, against a background of rising economic activity, their recruitment practices so as not inadvertently to exclude the special skills and experience of these applicants.

Mr. Rowe: Is my hon. Friend aware that one of the best ways of helping this age group to return to some type of employment is to assist with self-employment? In my constituency the local enterprise agency is having considerable difficulty in meeting the demand for enterprise allowances to assist those people. Will my hon. Friend provide encouragement by increasing the supply of enterprise allowance money?

Mr. Clark: My hon. Friend is right. Applicants in that age group are among the most enterprising and successful at taking advantage of the scheme. A question on the enterprise allowance is on the Order Paper. I have good news to report to the House at this stage, and I am sure that my hon. Friend will be satisfied with what I shall say.

Mr. Leighton: Is the hon. Gentleman aware of the views of the chairman of the MSC that people made redundant at 50 or over have virtually no chance of employment? In those circumstances, does the hon. Gentleman not believe that the very least that a civilised society should do is to pay a long-term supplementary benefit to the long-term unemployed over 50? That measure would cost just £90 million. Will the Government do that?

Mr. Clark: I do not accept the hon. Gentleman's pessimism about the prospects of that category of claimant. As I told the House in my initial answer, the number of claimants has been reduced by one third in a year. The hon. Gentleman is right in saying that the cost of extending long-term supplementary benefit to those

people would be about £90 million. The application of resources is always a difficult matter to decide, and it must be evaluated.

Employment Acts

Mr. Knox: asked the Secretary of State for Employment whether he is satisfied with the operation of the Employment Acts 1980 and 1982; and if he will make a statement.

Mr. Tom King: The 1980 and 1982 Acts have redressed the imbalance of bargaining power which was created by the legislation of 1974 and 1976. They have restored the protection of the law to victims of the closed shop and provided a remedy for those whose businesses and jobs are threatened by indiscriminate and irresponsible industrial action.

Mr. Knox: Does my right hon. Friend agree that the step-by-step approach adopted by the Government since 1979 has proved wise in practice? Will my right hon. Friend resist any temptation to depart from that cautious approach to the reform of industrial relations law?

Mr. King: That approach is right, and I am grateful for my hon. Friend's support. The third step, with what I confidently expect will be the 1984 Act, will be in place by the end of the year. The impact of the closed shop legislation is still to be felt. By 1 November 1984 a ballot must be held if a closed shop is legally to continue.

Mr. Norman Atkinson: Why did the Government advise Mr. MacGregor that it would not be in the interests of the coal industry for him to take the National Union of Mineworkers to court under the provisions of the 1980 and 1982 Acts?

Mr. King: The Government told Mr. MacGregor no such thing. Mr. MacGregor and the board of the NCB are responsible for their decisions. They have made their decisions, and the Government have every confidence in them.

Part-time Workers

Mr. Corbyn: asked the Secretary of State for Employment how many part-time workers earn less than £2·50 per hour at 1983–84 prices; what proportion of these are women workers; and what this figure represents as a proportion of women in part-time employment.

Mr. Alan Clark: In April 1983, in broad terms, about 3·5 million part-time workers were earning less than £2·50 per hour. Around seven eighths of these were women, who represented about three quarters of all part-time women workers.

Mr. Corbyn: Is the hon. Gentleman aware that 90 per cent. of part-time workers in Europe are women, 40 per cent. of whom are British workers? In the light of that fact and the vulnerability of part-time workers, will the hon. Gentleman accept the draft EEC directive, which would provide the same protection and conditions to part-time workers as are given to full-time workers, as is recommended by the Select Committee on European Legislation?

Mr. Clark: I doubt the wisdom of doing what the hon. Gentleman recommends. Wage rates are fixed by the


market. If wages are artificially raised by Government or by union interference, inevitably costs will increase and jobs will be lost.

Mr. Bill Walker: Does my hon. Friend agree that many of the people who work part time are employed in the tie industry and that the hon. Member for Islington, North (Mr. Corbyn), who has just asked a question, is making no contribution to their work?

Ms. Richardson: The Opposition are disappointed at the Government's continuing refusal to ratify the draft EEC directive on part-time employment. Is the Minister aware that part-timers—mostly women—are most often to be found on wage rates that are close to and often below wages councils minima, and that means that part-timers—again mainly women—are the vulnerable minority, as my hon. Friend the Member for Islington, North (Mr. Corbyn) suggested, and will suffer further deterioration in their living standards after the statutory protection of wages councils is withdrawn?

Mr. Clark: The hon. Lady should recollect that since 1970 women's average earnings have risen from 63 to 74 per cent. of men's. Where their wages are covered by wages councils women have a perfectly good redress under existing arrangements. The advisability of abolishing wages councils is not immediately relevant. That matter will come up for decision in a year's time.

PRIME MINISTER

Engagements

Mr. Ernie Ross: asked the Prime Minister if she will list her official engagements for Tuesday 1 may.

The Prime Minister (Mrs. Margaret Thatcher): This morning I had meetings with ministerial colleagues and others. In addition to my duties in the House I shall be having further meetings later today. This evening I hope to have an audience of Her Majesty the Queen.

Mr. Ross: Will the Prime Minister take time to reflect that five years ago she became Prime Minister and I became the Member of Parliament for Dundee, West? In that time she has managed to double unemployment. In Dundee, 21,000 people receive supplementary benefit; there are 5,000 people waiting for hospital beds; 2,500 youngsters are looking for nursery school places; and 2,000 young people who left school at 16 are now 18 and are no longer working. What message can she send to the people of Dundee, particularly the women, who have had to bear the brunt of the Government's policies for the past five years?

The Prime Minister: With regard to some of the things that the hon. Gentleman said, perhaps he forgets that inflation is at its lowest figure for a very long time; waiting lists in hospitals have fallen after rising by 250,000 under Labour; more children are in nursery schools than at the end of the last Labour Government; more 18-year-olds are going into higher education; expenditure per pupil has risen and pupil-teacher ratios have fallen; and the social security retirement pension has gone up in real terms, and so on. Unemployment has risen everywhere, and since May 1979 it has risen by 196 per cent. in the Netherlands and 154 per cent.in West Germany—about the same percentage in West Germany as here.

Mr. Michael Morris: Has my right hon. Friend had brought to her attention the booklet recently issued by Mr. Marlin called "Privatisation of Local Government Activities" based on the experience in Japan, a country with twice our population? It shows that Japan has fewer civil servants and local government officials, resulting in lower taxes and greater productivity? Will she bring it to the attention of all in local government?

The Prime Minister: Yes. We are constantly trying to bring these matters to the attention of local authorities. The Government are very much aware of them. My hon. Friend will be aware that we now have the smallest Civil Service in the post-war period.

Mr. Kinnock: Does the Prime Minister appreciate that widespread disappointment was felt in the House and elsewhere yesterday when she let it be known that she was not in favour of an inquiry into the circumstances leading to the murder of Police Constable Yvonne Fletcher and the events at the so-called Libyan People's Bureau since? Will she reconsider that apparent decision and facilitate an inquiry which neither exposes nor compromises the security services but is addressed specifically to the response of Her Majesty's Government to the information which they appear to have received about the activities of the Libyan People's Bureau since it was established in 1979?

The Prime Minister: No, Sir. As the right hon. Gentleman will be aware, we have set up an internal inquiry under the Cabinet Office. Any external inquiry into intelligence matters would risk compromising sources and damaging the effectiveness of the intelligence service. Indeed, it would damage the very cause that most of us seek to protect.

Mr. Kinnock: It is difficult to foresee that outcome if the Prime Minister were to commission an inquiry into, as I asked, the Government's responses to the information received during the existence of the Libyan People's Bureau. Will she accept that an inquiry does not have to publish either the sources or the detail of the information? It is surely necessary for the House and the country to discover what was the level of validity of that information and how the Government reacted to it in their instructions and in the right hon. Lady's instructions to the police and the security services, and in terms of this country's relations with the Republic of Libya.

The Prime Minister: No, Sir. I have already given instructions for the circumstances leading to the events of 17 April in St. James's square, including the intelligence and other information available, to be thoroughly reviewed. If there are lessons to be learnt in regard to the arrangements for handling, disseminating and assessing intelligence, the necessary changes will be made. It would be inappropriate, on security grounds, to make a public announcement of any such changes. [Horn. MEMBERS: "Cover-up."]

Mr. Allen McKay: asked the Prime Minister if she will list her official engagements for Tuesday 1 May.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. McKay: Will the Prime Minister today consider along with her other duties the effects of the coalmining strike? Will she inform the House what stocks are held at


power stations, how long she expects them to last, and at what stage she would expect to involve Her Majesty's forces to facilitate the movement of coal?

The Prime Minister: The stocks at power stations are good and sufficient to last for many months. I hope that the strike will be resolved satisfactorily.

Mr. Hawksley: Will my right hon. Friend welcome the decision announced this morning of Tatung to create 1,000 new jobs in Telford as confidence being shown internationally in the economic policies that her Government are following?

The Prime Minister: I thank my hon. Friend. I think that many other countries have great confidence in the policy that the Government are following and that they are showing it by bringing investment to this country.

Dr. Owen: Is the Prime Minister aware that members of the Franks committee, let alone members of other Privy Council inquiries investigating intelligence matters, will find it hard to understand how she can say that those inquiries would risk compromising sources and damaging the operational effectiveness and value of the services? If she continues to hold this rather derisory view of external inquiries, how does she justify not at least asking the Security Commission, which was established for this very purpose, to investigate these allegations which she herself by implication accepts as having some validity?

The Prime Minister: I think that the right hon. Gentleman will be aware that no one has been more forthcoming on intelligence matters generally than I have, I think perhaps too forthcoming, because the more they are discussed the more I am afraid our sources are compromised, as the right hon. Gentleman is well aware. He is aware of an occasion when that may well have happened. With regard to his specific question about the Security Commission, the commission's terms of reference are to investigate breaches of security in the public service, normally following a conviction under the Official Secrets Act 1911. It would not be appropriate to ask it to undertake an inquiry of the sort now proposed.

Mr. Haynes: asked the Prime Minister if she will list her official engagements for Tuesday 1 May.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Haynes: Is the Prime Minister aware that the eyes of the nation—[Interruption]—what are hon. Gentlemen laughing at—were on the Libyan embassy during the siege? Is she further aware that the eyes of the nation are on her at this moment, bearing in mind what the media are saying and what she has just said about a review of the siege? Is this another cover-up by the Conservative Government because of the failure once again of the Foreign Office?

The Prime Minister: I have nothing further to add to what my right hon. and learned Friend the Home Secretary said about a specific matter. Under very difficult circumstances, after the terrible events of that day when Constable Yvonne Fletcher was shot, my right hon. and learned Friend and the whole Government faced the problem of our people in the embassy in Tripoli. Obviously we had to consider their safety. I hope that the hon. Gentleman will recognise that the matter was resolved by all of them coming home safely and, of

course, the breaking off of diplomatic relations with Libya—an almost unprecedented step in the international community — followed by the deportation of all who were not diplomats and the expulsion of all who were.

Mr. Bellingham: Does my right hon. Friend agree that the ugly and violent scenes in Nottinghamshire this morning were sad and tragic for a great industry and that they were a direct result of incitement by Opposition Members?

The Prime Minister: Yes, I believe that to be so. I believe that when people look at the offers available to the coal industry on merit they will come to the inescapable conclusion that the pay offer is infinitely better than anything offered under the previous Government. Pay is about 25 per cent. above average industrial earnings. Investment is over 56 per cent. above that undertaken by the Labour Government and investment in the future offers a bright prospect for those who choose to make their careers in the coal industry.

Mr. Dixon: asked the Prime Minister if she will list her official engagements for Tuesday 1 May.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Dixon: Is the right hon. Lady aware of the petition presented to No. 10 Downing street this afternoon by young people from the northern region about the miserly £25 being paid to those on the youth training scheme? Is she aware that that sum has not increased since 1982? Will the Prime Minister now accept the recommendation by the TUC and increase the allowance to £35? Alternatively, will she accept the recommendation by the Employment Select Committee that the allowance should run at least in line with inflation?

The Prime Minister: No, Sir. I have no proposals to increase the training allowance available under the youth training scheme. I believe that the service is of inestimable value to young people. It is able to help more young people with the allowance as it is now than it would be if it were increased.

Mr. Beaumont-Dark: Does my right hon. Friend agree that we live in strange times when Arthur Scargill, who does not believe in hereditary peerages or in hereditary wealth, believes in hereditary jobs bought at the expense of those of hundreds of thousands of other union members? Is that not strange, since miners' redundancy pay is 15 times that which workers in other industries receive, and miners' wage increases are above those received by many other workers? Is it not time for Mr. Scargill at least to be sincere and support people, such as those at Ravenscraig, who need coal and jobs so that they, too, may survive?

The Prime Minister: If we had a lower-cost coal industry, as a result of the investment that we have put into it, many industries would be able to flourish because they are high users of energy. Whenever the price of coal is higher than it need be the price of energy is increased and people in high energy using industries are put out of jobs.
It is clear that not all the miners think the same as those who lead the NUM. Yesterday 46 pits were working normally in Nottinghamshire, Leicestershire, Warwickshire, Staffordshire, Lancashire, Derbyshire, Cumbria and north Wales. Partial working took place at a further nine pits.

Mr. Wilson: The House will have greeted with great disappointment the Prime Minister's response to a request for an inquiry. If a failure by the security forces led to the death of a policewoman and caused concern to the people, if not to Government Members, will the Prime Minister promise that she will publish a report on her inquiry into the case and come before the House to tell us exactly what happened? Will she then tell us who was responsible for any of the circumstances which might have led to the unfortunate events and, in particular, to the death of the woman police constable?

The Prime Minister: No, Sir. I answered that question, but perhaps the hon. Gentleman could not hear it because of the noise. I said that I had already given instructions for the circumstances leading up to the event of 17 April in St. James's square, including intelligence and other information available, to be thoroughly reviewed. I went on to say:
If there are lessons to be learnt with regard to the arrangements for handling, disseminating and assessing intelligence, the necessary changes will be made.
I am afraid that it may be inappropriate, for security reason, to make a public announcement of any such changes.

Teachers' Pay

Mr. Giles Radice: (by private notice)asked the Secretary of State for Eduation and Science if he will make a statement about the dispute on teachers' pay.

The Secretary of State for Education and Science (Sir Keith Joseph): I very much regret the teacher unions' refusal of a 4·5 per cent. offer which—as was made quite clear to them—would stretch to the very limit and for many beyond—their employers' capacity to pay. I am very sorry that the teacher unions should be willing to contemplate action designed to disrupt the education of their pupils. I hope that individual teachers will now reflect on the irresponsible and unprofessional course upon which union leaders are inviting them to embark, and that union leaders will reconsider the 4·5 per cent. offer which, I understand, remains explicitly on the table.

Mr. Radice: Does the Secretary of State realise that his own statement and actions have made a major contribution to the breakdown of negotiations and to the possible disruption of our children's education? Did he not write the unrealistic assumption of 3 per cent. into the education support grant, which has made it difficult for local education authorities? Did he not insult the teachers, 70 per cent. of whom earn less than £10,000 a year, by telling them that large numbers of candidates were coming forward for jobs at current rates of pay? Did he not influence the initial offer of 3 per cent. when Scottish teachers had already been offered 4·5 per cent.? Does he accept that the agreement with the further education lecturers shows that a settlement of 4·5 per cent. might have been possible a month ago if he had not so misjudged the position? Does he not understand that arbitration, which the teachers agree to accept, is the normal way out of teachers' disputes and would end this dispute before our children's education was seriously disrupted? Will he learn from his past mistakes, act before it is too late and put the weight of his office and the votes of his Department on the relevant Burnham committee behind arbitration?

Sir Keith Joseph: The short answer to all those questions is no, Sir. Once again the Labour party representative seeks to end a problem, which could be settled by realistic negotiation, by throwing taxpayers' money at it. It was not an insult to remind the teachers that large numbers of excellent candidates for the teaching profession are coming forward at present rates of pay. Moreover, union leaders had every reason to know that there were still prospects of negotiation and that they faced no wall at 3 per cent. My answer, therefore, is no, Sir.

Mr. David Madel: As resources are limited and as changes in the curriculum will require more specialist teachers, should not the present offer be accepted so that major salary structure talks can proceed in a reasonable atmosphere with no disruption in the schools?

Sir Keith Joseph: Emphatically, I answer yes to my hon. Friend. There are limited resources and only people in the Utopia occupied by Labour party representatives seem to think otherwise.

Mr. Clement Freud: How is it that the Secretary of State can be so remote from

the profession that he represents that the rejection of a humilating and unacceptable offer should come as a surprise to him? Will he accept that it is the intransigence of the employers that is exacerbating the misery of school teachers?

Sir Keith Joseph: If I represent anyone in the educational world, it is the pupils and their interests, which trade union leaders are threatening to damage.

Mr. Alan Haselhurst: Is not the paramount point, as we are so often told, the education of our children? Is that not generally assisted by the presence of a teacher in the classroom? Can my right hon. Friend encourage the reconsideration that he mentioned by stressing the need for talks on restructuring of teachers' pay and career prospects?

Sir Keith Joseph: I entirely agree with my hon. Friend. I hope that most teachers, who are responsible and dedicated people, will take that point of view. As for the discussions on the new structure for teachers' pay, I am interested in the outcome, but I have always made it plain that I shall commend it to my colleagues only if it is professional and reliable. The conduct of teachers, if they follow their union leaders' advice to disrupt pupils' education, will not encourage that attitude.

Mr. Martin Flannery: Does not the Secretary of State realise that it is an abuse to talk about a long line of people wanting jobs at current rates of pay when 4·5 million people are out of work and want jobs? Does he remember the Houghton report on comparability of teachers' pay of 1974, which admitted that teachers had fallen more than 30 per cent. behind their professional colleagues? The Labour Government of the day put that right, but unfortunately that 30 per cent. has now been eroded. When the right hon. Gentleman talks about the union leaders telling teachers to strike, he should be aware that I have just been to a conference where teachers voted to tell their union leaders to lead them in a strike. Does he not realise that this orderly and moderate section of the community, which never willingly goes on strike—

Mr. Speaker: Briefly.

Mr. Flannery: —is now in desperation being forced, as a result of Government policy, to go on strike and that he should let arbitration proceed and settle the matter?

Sir Keith Joseph: One of the problems might precisely be that the trade union leaders concerned have just returned from seaside conferences with their active members like the hon. Member for Sheffield, Hillsborough (Mr. Flannery) who has just spoken so misleadingly. I believe—I am sure that many teachers would agree — that the attitude which led to the Houghton report was one of the stages of decline from which the Government and its predecessor have had to rescue the economy.

Mr.Harry Greenway: Will my right hon. Friend urge the teachers to think again about embarking on action that will damage the examination chances of pupils and their prospects for later life, damage children who are already deprived by kicking them out of school when they need to be there and damage the nation's future by disrupting education without having gone through every possible avenue on talks on this important matter?

Sir Keith Joseph: Yes, indeed. Mr. Speaker. I hope that teachers will reflect on those facts and realise that they have now been offered a 4·5 per cent. pay increase, which already exceeds the amount of money available to pay teachers in local authority budgets.

Mr. Peter Hardy: As the right hon. Gentleman professed concern for children, will he recognise that the thousands of people he claims are queueing up to join the teaching profession are scarcely capable of teaching young people who are taking 0 and A-levels in a few weeks' time? Is he not worried about those pupils? As he has committed himself to the cause of realism, would it not be realistic for him to agree to arbitration to avoid damaging the young people he is supposed to care for?

Sir Keith Joseph: I think the hon. Gentleman's question should be addressed to the trade union leaders concerned, as they are inviting their members to disrupt children's education. I do not think that arbitration is the answer — [HON. MEMBERS: "Why?"] Because the arbitrator does not have to find the money and can, therefore, regard affordability as just one of several factors, instead of what it is — the one determining factor.

Mr. J. F. Pawsey: Would my right hon. Friend care to spell out the relationship between the number of teachers and the size of wage settlements? There must be a relationship between higher wage settlements and fewer teachers.

Sir Keith Joseph: Yes, indeed. If the trade union leaders have not already explained that to their followers, let me do so. The consequence of exceeding the amount of money that local authorities have available for the pay of teachers will be fewer teachers. The important money available for books, equipment and maintenance may be once again in danger of being raided.

Mr. Harry Ewing: Will the Secretary of State explain why teachers or their union leaders should put any faith in a Government promise of salary restructuring when they have the example of the nurses, who were persuaded by the Prime Minister to take the same course at this time last year and who are about to be stabbed in the back by the Prime Minister?

Sir Keith Joseph: On teachers' salary restructuring, I have always made it plain that the Government would look kindly upon such proposals only if they are professional, watertight and based upon thorough and professional assessment.

Sir Kenneth Lewis: Is my right hon. Friend aware that the vast majority of teachers would be happy to pick up this award, and that the

disruption is caused by a dispute within various unions? The sooner those unions can get together and represent the whole of their membership, the better.

Sir Keith Joseph: I agree with my hon. Friend. The burden of responsibility falls clearly upon the trade union leaders. I hope that their members will think very carefully before following their advice.

Mr. Ian Wrigglesworth: Will not the Secretary of State think again about what he has just said? Is it not a fact that the teachers' panels for Scotland and for the further education sector were prepared to accept 4·5 per cent. but that only 3 per cent. was offered to teachers in England and Wales? Was not that gross bungling by employers the cause of the approaching disruption? If the Secretary of State is genuinely concerned for pupils, he should want to attract the highest quality teachers possible into the profession. In order to do so, should he not restore the pay differentials with comparable professions that existed three or four years ago?

Sir Keith Joseph: I understand—this is on public record—that it was made clear to trade union leaders that negotiations for pay increases of more than 3 per cent. were available if the unions had persisted with them. There is no truth in the claim that teachers' trade union leaders faced a wall at 3 per cent.

Mr. John Powley: If the dispute can be settled at 4·5 per cent. or higher, will the percentage of the education budget devoted to wages and salaries increase? Will that increase mean that there will be a drop in the percentage of educational resources devoted to books, teaching equipment and the maintenance of our schools?

Sir Keith Joseph: Yes—for many LEAs below 4·5 per cent., but certainly at 4·5 per cent.

Mr. James Tinn: Will the Secretary of State expand on his statement that he rules out arbitration because the arbitrator would not have to find the money? Can the right hon. Gentleman think of any case in the history of industrial negotiation, public or private, in which an arbitrator has been expected to provide that money?

Sir Keith Joseph: No, but I am pointing out one of the fallacies in assuming that arbitration leads to a painless solution. I am explaining why I think that the employers were right to reject arbitration yesterday.

Several Hon. Members: rose—

Mr. Speaker: Order. I remind the House that a private notice question is an extension of Question Time. Two very important statements are still to be made.

Libyan People's Bureau (Closure)

The Secretary of State for the Home Department (Mr. Leon Brittan): With permission, Mr. Speaker, I should like to make a further statement about matters connected with the shooting incident in St. James's square on 17 April.
On 25 April, I reported to the House the facts of the initial incident, and subsequent events up to the time of that statement. Today I shall complete my report of the events. I shall also deal with the public order issues connected with demonstrations and state how I intend to use my powers for the immigration control of certain nationals in future. My right hon. and learned Friend the Foreign Secretary will then give an account of our dealings with the Libyan people's bureau and the Libyan authorities in Tripoli. He will also deal with the steps that have been and will be taken in the diplomatic field in response to those events.
On the aftenoon of Tuesday 24 April, Mr. Bagdadi, a member of the so-called revolutionary committee who had not been in the bureau at the time of the incident, was deported. On Friday 27 April, Mr. Matouk, another member of the revolutionary committee, was also deported.
On the evening of 25 April, a representative of the Libyan authorities, Colonel Shaibi, arrived in this country to discuss the arrangements for the departure from this country of those in the Libyan diplomatic buildings in London. The discussions relating to that were also attended by a Saudi diplomat as a representative of the power nominated to look after Libyan interests here after the breach of diplomatic relations. Colonel Shaibi pressed that the Libyan authorities should retain the use of one of their buildings after Sunday 29 April, but it was made clear to him that all the official premises were to be closed from Sunday night. The Libyans were also told that, after midnight on 29 April, when the buildings ceased to be diplomatic premises, the police would require to search them to satisfy themselves that no weapons or explosives were inside and that the buildings were safe. They were told that a representative of the protecting power—the Saudi Arabian Government—could be present if they wished. They were informed that, as a matter of safety, arrangements would have to be made to ensure that those leaving the people's bureau building were unarmed; and that they would be asked to answer questions to assist the police in investigating the murder of WPC Fletcher.
During the course of Thursday 26 April, the Libyans removed their diplomatic bags from the bureau building. On the same day some 112 people consisting of the families of Libyan diplomats, as well as some diplomatic staff from the buildings other than that in St. James's square, left the country on a Libyan-Arab Airlines flight. Late on the evening of Thursday 26 April, the detailed departure arrangements for those inside the bureau were finalised. Those arrangements were put into effect on the following day, Friday 27 April. The 30 people in the Libyan people's bureau left the building in groups of five, beginning at about 9.50 am. After they had left the building, the police made sure that they were not carrying explosives or weapons. The search was carried out by the

use of electronic devices. The whole operation was witnessed by representatives of the Saudi Arabian, Syrian and Turkish embassies.
The 30 people who came out of the building were then driven, accompanied by the diplomatic observers, to the Civil Service college at Sunningdale, where they arrived shortly before noon. After an initial explanation of the procedure to be adopted during the remainder of the day, the police then proceeded with their inquiries, witnessed by two of the diplomatic observers. The identity of each of the Libyans was established by reference to their passports and other documents. They were invited to provide a full set of fingerprints, but declined to do so. They were then invited by the police to answer a number of questions. Each Libyan was questioned by two police officers using interpreters where necessary. Throughout the whole of that process, the diplomatic observers were free to go wherever they wished in the building. With the questioning completed, and the aircraft at Heathrow ready to return them to Libya, the group were escorted by the police to Heathrow, immigration formalities having been completed at Sunningdale. The aircraft left Heathrow at 7.30 pm.
At 4.10 pm yesterday afternoon the police entered the former bureau building through the back door, which was opened in the presence of a representative of the Saudi Arabian embassy by means of a rifle shot. The building was first examined by Royal Engineers and anti-terrorist squad explosives experts who satisfied themselves that it was safe, and was subsequently searched by anti-terrorist squad police officers for evidential purposes. That search is continuing. So far, two hand guns and a quantity of ammunition have been discovered in the course of the search of the former bureau premises. Firearms residue has been found on the carpet below the window from which the weapon was believed to have been fired and a spent cartridge case of the same calibre as the weapon used on 17 April has been found in the same room. Elsewhere in the building, the police have found accessories for submachine guns of the same calibre.
As I made clear last Wednesday, the view of the police was that they would not be able to obtain evidence to sustain a prosecution for the murder of WPC Fletcher without the co-operation of those concerned in the bureau. None of the police inquiries since then, whether at Sunningdale, St. James's square or elsewhere, or these discoveries, have altered the position. The police remain of the view that there is not sufficient evidence to sustain a prosecution against any individual. None the less, they are of the view that it is likely that the murder was committed by one of two people who were in the bureau. Both of these possessed diplomatic immunity. They therefore could not have been prosecuted under English law even if the necessary evidence had been available. The questioning at Sunningdale and other evidence obtained may well, however, provide information relevant to the investigation of bombings in London and Manchester in respect of which some people have already been charged. The information obtained at Sunningdale continues to be assessed.
Since my last statement to the House, I have been considering whether the law on demonstrations and marches, as it applies to such events held by foreign nationals, or generally, can helpfully be amended. Neither the police nor I have power to ban a static demonstration in advance.

Mr. Dennis Skinner: Unless they are by miners.

Mr. Brittan: However, the police already have extensive powers, in pursuance of their duty to preserve the peace, to regulate the conduct of demonstrations and to prevent a demonstration assembling, or to disperse one already assembled, if they have reasonable cause to believe that such action is necessary to preserve or restore public order. As to marches, the Public Order Act 1936 provides powers to impose conditions or, if those will be inadequate, to ban the holding of public processions, in order to prevent serious public disorder.
I understand the feelings which often lie behind suggestions that demonstrations and marches by foreign nationals should be subject to special controls and, possibly, prohibition. I doubt, however, whether it would be right for either the police or the Government to be empowered to pick and choose which demonstrations were permissible and which were not, either in relation to the nationality of those concerned or the subject about which they were demonstrating. We should remember who committed the offence on 17 April—the demonstrators in St. James's square were the victims, not the perpetrators, of violence. But we must be certain that there are adequate powers to prevent warring factions from fighting their battles on the streets of London, as the right hon. Member for Manchester, Gorton (Mr. Kaufman) very properly said last week. The House will know that I have in hand a comprehensive review of public order law, including the issue of the control and regulation of static demonstrations. The conclusion of the review, and the announcement of the results, will now be expedited.
I have also considered what additional immigration measures can be taken, quickly, and within the present rules, to bring home the fact that we are not prepared to tolerate nationals of other countries bringing on to the streets of Britain violence for their own political ends. The House will already be aware of the instructions that I have given to my immigration officials in dealing with Libyans following the break in diplomatic relations. I said then that I would not hesitate to use my powers of removal or personal certification if I were satisfied that there was evidence that the presence here of any individual was against the national interest. I can inform the House that I have today signed detention orders against a further six Libyan nationals whom it is intended to deport.
As far as Libyan nationals generally are concerned, a number of further restrictions will now be introduced for any who, under the rules, might be considered for visas. Visitors will receive permissions to stay of shorter duration, adapted to the circumstances of each case; measures will be taken to ensure that those admitted observe the conditions imposed. Libyan students who come to Britain must be bona fide students, and we expect them to pursue their studies, not indulge in violence. Yet there is reason to believe that some of them have been prone to do just that. I intend, therefore, to tighten up immigration control affecting them. Any Libyan student who qualifies for admission under the rules will not normally be given permission to stay for more than one term at a time; anyone failing to meet the requirements in any respect will be refused an extension; each application or reapplication will be accompanied by stringent checks. In particular, we shall have to be fully satisfied that a

student is in fact properly pursuing a full-time course of study. Similar restrictive measures will apply to other categories of applicant as the rules allow.
At present, foreign nationals are normally required to register with the police on arrival only if their period of stay is more than six months. In view of the announcements I have made, however, any Libyan national seeking entry under these new restrictions will be liable to register with the police. There must be no misunderstanding by those involved of the swift and serious consequences of future misbehaviour.
Libyan nationals required to register with the police will be asked to sign a declaration recognising the consequences of their indulging in violence for political reasons, and their intention not to do so. This document will be affixed to the police registration form. This should also be a warning to the nationals of other countries. I am ready to apply similar restrictions to others who demonstrably bring into Britain their own political violence.
In setting out these measures, which will be supported by appropriate instructions to visa-issuing posts abroad, I have been concerned not to undermine our tradition as a country of safe refuge and asylum. No one from a country to which such restrictions apply who wishes peacefully to express his views in public has anything to fear. But those who abuse our hospitality with violence will cease to receive it.

Mr. Willie W. Hamilton: On a point of order, Mr. Speaker. I hesitate to raise this point of order now, but I think that it is rather important. I notice that. as has happened before, the hon. Member for Bury St. Edmunds (Mr. Griffiths), who is a Back Bencher, has a copy of the statement in advance. He has the statement in his possession. I have noticed this on previous occasions. It is well-known in the House that he is paid by the police. If he has a pre-copy of the statement, it is a gross abuse of the House.

Mr. Speaker: I have to say that I know nothing about that.

Mr. Gerald Kaufman: rose—

Mr. Hamilton: Further—

Mr. James Tinn: Further to the point of order, Mr. Speaker. Will you at least agree to look into the matter so that it can be regularised, if anything irregular has happened?

Mr. Speaker: Yes, I will certainly do that. I think that the same treatment should be accorded to all hon. Members.

Mr. Kaufman: rose—

Mr. Skinner: Further to that point of order, Mr. Speaker. In view of the fact that many statements of one kind or another are made on a multitude of subjects, and that during the past several weeks statements have been made about the mining industry, and so on, is it possible for the 15 miners' Members of Parliament to get copies so that they can have advance warning, and should not the Leader of the House get up and explain this conduct?

Mr. Speaker: We have a very heavy day in front of us. I have already said to the House that I will look into the matter.

Mr.Alan Williams: Further to the point of order, Mr. Speaker. I do not ask for a statement at this moment, but I think that, by the time that we have finished both statements this afternoon, the Leader of the House should be prepared to make a statement to the House on future conduct in this regard.

Mr. Kaufman: May I first thank you, Mr. Speaker, for the response that you have made to the point of order put to you by my hon. Friend the Member for Fife, Central (Mr. Hamilton)?
Her Majesty's Opposition wish to congratulate the police on the skill and courage that they have shown in conducting the siege at the Libyan people's bureau, in the efficiency of the actions which ended the siege and relieved this country of the presence of those who had been in the bureau, and in the potentially dangerous search of the building.
That having been said, the fact must be faced by the House that we all have suffered a national humiliation with a woman police constable having been shot down in cold blood, and her colleagues in the force obliged to escort her murderer in safety out of the country. By 17 April, those consequences were unavoidable, but the British people want to know whether that disaster, combined with a personal and family tragedy, could have been avoided or prevented and that any future repetition of such unacceptable events can be prevented.
The Home Secretary said in his statement today that he had completed his report to the House. He has come nowhere near doing so. Why was the Home Office so complacent about the activities of the bureau? The police issued a warning on 1 March about the danger of Libyan action. After the London and Manchester bombings a few days later, why did a Home Office Minister tell the House of Lords:
As to the question of the bureau, I understand that its proceedings and status differ somewhat from some of the other diplomatic institutions in this capital. But, at the moment, that is not causing undue embarrassment.— [Official Report, House of Lords, 5 April 1984; Vol. 450, c. 795.
WPC Fletcher was murdered from that building 12 days later. Do the Government have any information about how the weapon that killed her and other weapons got into the bureau? Will the Home Secretary now tell us whether a telex order from Tripoli was intercepted the day before the murder? If there was such an order, when was it decoded? Was it decoded in time for it to constitute a warning in advance of the demonstration or in advance of the Heathrow bombing on 20 April? If there was such a message, what did it say? Did it order that demonstrators should be fired on? Did it order that the police should be fired on? Did it order that a bombing and sabotage campaign should be launched? Did police surveillance of the bureau during the siege overhear discussion as to how the orders should be interpreted?
We are relieved to hear from the Home Secretary that the Government do not contemplate taking powers to ban the right of free demonstration in this country, as such a ban would mark the ultimate victory of Colonel Gaddafi.
On whose advice did the police allow Libyans without diplomatic immunity to leave the country? Was it on the advice of the Foreign Office? The Home Office has been less than clear about the position of Libyans remaining in this country. What about the Libyan nationals whom our

armed forces have been training? On 29 March the Minister of State for the Armed Forces said in a written answer:
The training being provided in this case has been requested by the Libyan Government and is compatible with British defence interests.—[Official Report, 29 March 1984; Vol. 57, c. 296.]
Clearly, such compatibility no longer exists. Have all those persons now been sent packing?
What about the 280 Libyan apprentices being trained by British Airways at its training school and in workshops and hangars and who are based at Heston, next to Heathrow airport? Do they have access to the airport itself? Many of them are said to be highly motivated politically and all have the opportunity to carry out dangerous sabotage operations. Are they being sent away? Are there other trainees?
The Home Secretary in his statement today has told the House and the country little of what they need and are entitled to know. Only an independent inquiry can allay public disquiet. Her Majesty's Opposition demand an independent inquiry into the whole of this grave and damaging episode.

Mr. Brittan: On the first point, I am sure that the House will wish to thank the right hon. Gentleman for his kind remarks about the police. Indeed, I have said very much the same thing on several occasions recently.
The right hon. Gentleman asked whether the whole episode could have been avoided. On the intelligence questions, I cannot add to what has already been said, for reasons given by my right hon. Friend the Prime Minister at Question Time today. Nevertheless, certain matters can be dealt with without breaching that. On the activities of the bureau, the suggestion by the Libyan diplomats that they would not be responsible for the consequences if the demonstration was not prevented was entirely in line with their general attitude of trying to muzzle demonstrations protesting against the Gaddafi regime. There was nothing special about the way in which it was put. I do not think that the right hon. Gentleman, who has expressed strong views about the right to demonstrate, would have regarded it as appropriate, even if it were possible, to ban the demonstration on the strength of representations from Libyan diplomats, when it was on a very small scale and easy to police.
With regard to the bombs a month or so earlier, as I explained last week, there was no clear link between the bureau and the perpetrators of those outrages. Four people were arrested and are being prosecuted for what occurred. A further six, against whom there was not sufficient evidence to mount a prosecution, have been deported. Even in the case of those six, a clear link was not established between them and the bureau. In those circumstances, I believe that the right hon. Gentleman is showing that the greatest of his many qualities is hindsight when he suggests that it might have been sensible or proper to take exceptional measures in relation to a peaceable demonstration.
The right hon. Gentleman asked whether I had any information about how the weapons got into the bureau. I am afraid that I do not have that information. He also asked about Libyans undergoing training with the armed forces. I understand that two Libyan midshipmen who had been studying at the Royal Naval college, Dartmouth, have been told by the Ministry of Defence that their training is at an end. I have therefore thought it right to


curtail the duration of their stay, and if they fail to leave voluntarily by 7 May they will be deported. Three further Libyans attempted to enter the United Kingdom at the weekend to embark on a separate course for midshipmen at Dartmouth, but the Ministry of Defence was no longer willing to provide places for them on the course and they were accordingly refused entry.

Sir Paul Bryan: Is my right hon. and learned Friend aware—

Mr. Kaufman: rose—

Mr. Speaker: Order. Not at this stage.

Sir Paul Bryan: Does my right hon. and learned Friend agree that the British public are fully aware, from the experience of several of our NATO allies who have Libyans within their borders, that it is impossible to conduct normal civilised diplomatic relations with the present Libyan Government? Is he aware that there is therefore considerable admiration for the good sense and effectiveness with which the Government have dealt with a sad and very tricky situation?

Mr. Brittan: I am grateful to my hon. Friend for his words of support, which are deeply appreciated.

Dr. David Owen: Is the Home Secretary aware that many people hearing the statement and the measures that he has now taken will feel that this is a case of locking the stable door after the horse has bolted—or rather, been escorted out of the country? He will recall telling the House that it was
not the practice to give details of intelligence matters".
He went on to say, however:
no specific information that would lead us to believe that such an incident would occur when it did was in our hands before the event.—[Official Report, 25 April 1984; Vol. 58, c. 747.]
The right hon. Gentleman and the Prime Minister are now refusing to explain what was meant by "in our hands". In whose hands? A United States Administration official has said that the Government obtained the information through their own sources and not from the Americans. We are entitled to know when that information was given and to whom it was passed.
The reference to the Security Commission announced to the House in January 1964 by the then Prime Minister, Sir Alec Douglas Home, did not accurately record its terms of reference. They were not changed by the procedures announced to the House in 1969 and are tailored exactly to the present circumstances. On any reasonable reading of what the Prime Minister and the Home Secretary have said, there has been a breach of intelligence; the House is entitled to an independent investigation by a source that will not prejudice the intelligence services of this country and will not cause any anxiety to our friends or reveal to our enemies information that they should not know.

Mr. Brittan: If the right hon. Gentleman today held the position of Foreign Secretary, which he once held, he would not for a second be making such suggestions. My right hon. Friend the Prime Minister made it quite clear in her letter to the right hon. Gentleman that she was not proposing to add to what I had said on intelligence matters in the House last week. That is a position I share.

Mr. Cranley Onslow: Leaving aside the obsession of the hindsight merchants and headline hunters

on the Opposition Benches with sensitive intelligence matters on which no useful report could be made in public—

Dr. Owen: It would not be in public.

Mr. Onslow: —does not my right hon. and learned Friend agree that there is a role for a Select Committee of the House to help his Department and the Foreign and Commonwealth Office in their examination of the immunities enjoyed by diplomats and the interlocking questions of the Vienna convention and the public order laws? If that were done, it would be helpful to public and Parliament alike. Is not this a matter in which Parliament should be able to play a full part?

Mr. Brittan: I entirely agree that there is absolutely no disposition or desire whatever on the part of the Government to exclude the normal parliamentary procedures looking into this type of matter. I know that my right hon. and learned Friend the Foreign Secretary will be referring to some of the points that my hon. Friend has just made.

Mr. Merlyn Rees: Now that action has been taken against the Libyan representatives in this country in the light of the death in St. James's square, has not the time come to take action aginst other countries which give passports to any Arabs from any part of the Middle East, whether or not they are citizens, and whose airlines indulge in activities that are known to be against our interests? Before it is too late, let us do something about nationals of other countries, as well as the Libyans.

Mr. Brittan: Diplomatic action is a matter for my right hon. and learned Friend the Foreign Secretary, who will make a statement later. As to the suggestion that the nationals of any other countries are seeking to enter the United Kingdom for nefarious purposes, I know that the right hon. Gentleman will accept that we shall be very alert to the need for increased vigilance in that regard and that we will not hesitate to use our powers at home to seek to avert it.

Sir Bernard Braine: While one welcomes my right hon. and learned Friend's decision to look again at the law on demonstrations, is not that largely irrelevant in this case, bearing in mind the fact that, for some time now, Libyan dissidents and Libyan students generally living in this country have been in fear of their lives? There have been numerous attacks involving deaths and woundings not only here but in western Europe. When last week my right hon. and learned Friend referred to there being no specific information about dangers if this demonstration went ahead, did that not imply that there was some information? Unless these questions can be answered satisfactorily on the Floor of the House, does not my right hon. and learned Friend agree—I am entirely with him in his generally robust approach to the whole matter—that there is a strong case for setting up an inquiry of Privy Councillors or whoever to establish exactly what happened and to ensure that it never happens again?

Mr. Brittan: I cannot add to what my right hon. Friend the Prime Minister has said about why she does not think that an inquiry would be the most useful way forward. However, in many other respects I welcome what my hon. Friend has said because—it is necessary to correct what


the right hon. Member for Manchester, Gorton (Mr. Kaufman) said—with regard to static demonstrations I expressed some reservations about the desirability or feasibility of a ban. I did not say that it was excluded, rather that it would be included in the review.
My hon. Friend raises a different point—threats to dissident Libyans in this country. There is a great difference between bombings and matters of that kind and demonstrations. Different considerations arise. Apart from anything else, the objects of demonstrations—both for those who take part in them and those who seek to oppose them—are open and public, whereas the essence of bombings is that the cowardly people who perpetrate such actions hope that they will not be discovered. The handling of the two issues requires a different approach, and I am glad that my hon. Friend has given me the opportunity to ventilate that difference.

Mr. Andrew Faulds: Does the right hon. and learned Gentleman accept that those of us who have been working for the best part of 20 years for better relations with the Arab world are no less appalled than everyone else by these appalling developments? Perhaps we are even more disappointed and disturbed than most other people. Do not the Government now consider it advisable to mop up and expel the reported 200 members of revolutionary committees who are supposedly still at work in Britain?

Mr. Brittan: As I am sure the House will appreciate, the hon. Gentleman's first remarks will be all the more appreciated, given his stance in dealing with these matters. As to mopping up and expelling 200 people, we must proceed in an orderly and lawful way, not indiscriminately. Last week, I said that I would not hestitate to use my powers to deport those whose presence here there was reason to believe would not be in the continued interests of the United Kingdom. Obviously, in the intervening period, I have dealt with the actual departure of the members of the bureau and related matters. None the less, in that time we have found six people against whom it has been possible credibly and responsibly to take action. I shall not hesitate to do the same with any others, however numerous or few they may be, but I would be reluctant to give an indiscriminate commitment in relation to a number as large as 200.

Sir William Clark: Is my right hon. and learned Friend aware that the overwhelming majority of the British people have the greatest admiration for the way in which the police force handled the St. James's square affair? Is he further aware that, given all the difficulties surrounding the Libyan episode and bearing in mind the number of British nationals in Libya, he has earned the admiration of many people for the cool, calm and restrained way in which he has handled it?
Having said that—[HON. MEMBERS: "Ah."]—does not my right hon. and learned Friend agree that the right of British people to demonstrate peaceably is inviolate and sacrosanct and should be preserved? But surely it is high time to look at the law of demonstrations. If non-British characters want to demonstrate, they should do so not in this country but in the country from which they came. What is sauce for the goose is sauce for the gander, because in no circumstances would we as Britishers be allowed to demonstrate in Libya.

Mr. Brittan: I share and appreciate my hon. Friend's remarks about the police and I am grateful to him for his kind remarks about my own handling of the matter. In the context of what occurred last week, when thinking about the right to demonstrate one naturally thinks about a particular sort of demonstration by people of particular nationality. Although we shall look into the whole question of static demonstrations, I ask my hon. Friend to consider whether he would wish to be associated with a change in the law that would make it impossible for Russian dissidents to demonstrate outside the Soviet Embassy, however appallingly the Soviet Government behaved. We should want to think long and hard before doing that.

Mr. A. J. Beith: Why, given the known threats to Libyans living in this country, were certain Libyans known to be closely associated with Colonel Gaddafi allowed to remain here on student visas when it was well known that they had not enrolled for, or had not taken part in, the courses for which they were originally admitted? In particular, why was Abdul Bagdadi, who has since been deported, allowed to remain in this country for so long when he had not taken up the course for which he had been admitted?

Mr. Brittan: It is important that we should have more information on whether students are doing what they came here to do. It is exactly for that reason that I have tightened up the regulations affecting Libyan students. I know that the hon. Gentleman is proud of his concern for civil liberties. There is no doubt that tightening up on students in that way, quite apart from imposing additional burdens on the police and immigration authorities, would mean a more restrictive regime. It is not something on which one can embark lightly. I have done it in this case, and I shall not hesitate to do it again. However, other considerations are also relevant.

Mr. James Hill: Can my right hon. and learned Friend say a little more about the problem of immigration control? Is not one of the great weaknesses that the sophisticated terrorist has the opportunity to go to any part of the world and to travel on any airline under almost any identity? Is not one problem our ineffectiveness in identifying such people when they pass through immigration control?
Will my right hon. and learned Friend examine the question of diplomatic immunity? The British public are extremely worried that any crazed person with a diplomatic passport can kill at will.

Mr. Brittan: The question of diplomatic immunity and its consequences are matters for my right hon. and learned Friend the Foreign Secretary. I know that he will want to deal with them when he addresses the House later.

Mr. Jack Ashley: I do not want my question to be misunderstood by the House. I share the sense of outrage felt by all hon. Members, and I am appalled by what has happened. I support the Home Secretary in the strong action that he has taken. Nevertheless, may I warn of the dangers of this degenerating into a witch hunt against all Arabs in Britain? We are right to take action against those who are a threat, but let us maintain a sense of balance and not be dragged into a witch hunt. The Home Secretary is right in the steps that he has taken, but let us not go too far and too wide on this issue.

Mr. Brittan: I assure the right hon. Gentleman that there will be no witch hunt. The measures that I have announced are controlled, limited and designed to deal with the particular objectives. As I explained in the answer to the hon. Member for Warley, East (Mr. Faulds)—whose sympathy for the Arab cause is unrivalled—we shall not initiate a general sweep-up. However, I shall deal with those against whom there is material evidence to show that their continued presence in Britain is against the public good.

Mr. Peter Bruinvels: I welcome my right hon. and learned Friend's statement that there will be satisfactory control of all Libyan students, and that they will have to report regularly to the police. What will he do to ban and maintain the keeping out of all Libyan diplomats and the 11 so-called diplomats to ensure that they can never return to Britain?

Mr. Brittan: The immigration officials will be given the information necessary to secure that objective. Anyone in that category who is tempted to return must bear in mind that the immunity extended has now expired and that they are open to arrest, investigation and, if necessary, appropriate prosecution.

Mr. Tam Dalyell: Since his last statement, has the Home Secretary had any opportunity to double-check the technical advice that he was given that electric scanners and magnometers are not much use in detecting guns and ammunition in a diplomatic bag? If his advice is correct, what on earth are we all doing checking in our bags at Heathrow?

Mr. Brittan: The answer is that either the hon. Gentleman has secured very special privileges from the airlines that he patronises, or his bag is significantly different in size from that of many diplomatic bags, which can amount to actual crates. Whether on diplomatic and other grounds it is appropriate to X-ray diplomatic bags is a matter for my right hon. and learned Friend the Foreign Secretary—[Interruption.] I am answering the hon. Gentleman and it is a point well worth noting.
The efficacy of such an action is a matter with which I can deal. I am advised that modern X-ray equipment is highly efficient in detecting the presence of metal objects in a bag. If a weapon was the only metal object in a diplomatic bag, it would be possible to identify it. It would be naive to suppose that those intent on importing weapons would not seek to disguise their presence by, for example, enclosing them in metal containers whose image on an X-ray screen might appear to be wholly innocuous. The success of such scanning relies on the ability to open bags to distinguish between innocent metal objects and those more sinister. The prohibition on the opening of diplomatic bags leads us to the conclusion that scanning procedures would be of limited value.

Mr. James Couchman: In the light of the unhappy events in St. James's square, is my right hon. and learned Friend satisfied that the police have access to adequate supplies of equipment and weapons to control such events? Is he satisfied that the police whose duty it is to protect diplomatic premises have adequate access to the equipment necessary for such duties?

Mr. Brittan: I am not aware of any inadequacy. If anyone suggests that, I shall be happy to look into the matter.

Mr. D. N. Campbell-Savours: How can the Government claim security issues in defence of what has been described by my hon. Friends as a cover-up? Is it not well known that transmissions from HMS Conqueror were sent to GCHQ during the Falklands dispute, as was the case with transmissions from the United States during that dispute? Were not those equally security issues? What is the difference on this occasion?

Mr. Brittan: I am not proposing to deal with questions relating to the Falkland Islands, nor have I anything to add to what I have already said about the intelligence aspects of this matter.

Mr. Eldon Griffiths: Reverting to my right hon. and learned. Friend's detailed statement, does not the forensic evidence that has now been obtained from the bureau—the firearms, residue and powder stains—show clearly that Yvonne Fletcher was the first British police officer to be murdered by a diplomat to whom the Foreign Office had given accreditation? What compensation does the Foreign Office contemplate giving to her family?
On the question of the two diplomats, one of whom the police believe was the murderer of the police officer, as and when they can identify him or her—as I believe they will—do the Government intend to seek to ensure that that person is put on trial in Libya for the murder, or that that person's extradition is sought so that he or she may be tried for murder in Britain?

Mr. Brittan: I am afraid that we do not have extradition arrangements with Libya. A trial in Libya would be a matter for the Libyan authorities, and all hon. Members will have their own views about the likelihood of such a trial taking place and its probable outcome.
The question of compensation from the Foreign Office is a matter for my right hon. and learned Friend the Foreign Secretary.

Mr. Skinner: Will the Home Secretary guarantee that no defence certificates are being issued for the sale of arms to Libya, and that no defence certificates will be issued in future?

Mr. Brittan: We shall not embark upon any new defence contract with Libya, and existing contracts will be reviewed.

Mr. Robin Maxwell-Hyslop: Should we not draw a distinction between the expression of opinion in the media by foreign nationals either resident in or visiting Britain, and political demonstrations in our streets by foreign nationals, which is a wholly different matter and involves police protection for both public order and the persons concerned? Does not the tradition of asylum in most civilised countries carry with it an abstention from political activity by those who have been granted the right of asylum?
Is this not an historic tradition in civilised countries? Should not the Home Secretary consider carefully whether the transition from expression of opinion in the media to demonstration on the streets is not a licence to those granted the hospitality of this country, which has no real basis in our history or in normal international practice?

Mr. Brittan: Asylum is a technical term governed by international agreements, and the vast majority, if not all, of those who have been engaged in demonstrations are not people who have been granted asylum. I shall, of course,


take into account my hon. Friend's views in the review of public order legislation on which we have embarked. I still have grave reservations about making a distinction between rights and freedoms that are exercisable by our nationals and ones exercisable by those foreign nationals who have a legal right to be in this country.
As we are talking about political demonstrations, I must say that politics comes into it. If a large number of eastern Europeans had been arrested for demonstrating outside the Russian embassy when the Soviet Union invaded Afghanistan and I had said that that was exactly as it should be because they had no business to engage in such demonstrations, I do not think that I should have had much support either from the Benches behind me or those in front of me.

Mr. Greville Janner: The House will have noted that the right hon. and learned Gentleman said that those leaving the Libyan people's bureau were individually searched by electronic means. Was he informed that that was in accordance with the Vienna convention? If so, why would it not also have been in accordance with that convention to have searched electronically the bags that left the embassy to try to avoid the outrageous export of the weapon used to murder the woman police constable?

Mr. Brittan: I am advised that the personal search, conducted in the way that I described, was permitted under international and domestic law. As for electronic scanning, I explained in answer to the hon. Member for Linlithgow (Mr. Dalyell) why I did not think that would be a practical advantage. On the legality of the practice, I explained last week that there were two views, but that the overwhelming state practice, apart from the legality of it, was not to engage in it.

Mr. Kaufman: Is the Secretary of State aware that, if the Government take fresh powers to ban demonstrations by foreign nationals, they will be conceding to Colonel Gaddafi the very objective that the St. James's square shootings were intended to achieve? The right hon. and learned Gentleman gave no answer to my question about the 280 apprentices being trained by British Airways. What is being done about them?
Above all, why is the right hon. and learned Gentleman so stubborn and recalcitrant about providing information on the telex order from Tripoli, alleged to have been sent on 16 April? If it was sent, the Libyans know what was in it. The press—The Times, the Sunday Telegraph, the Daily Mail and other newspapers—have been full of references to it. If this House and the country are to be deprived of the truth about it, many people will come to the conclusion that the Goverment must be engaged in a cover-up. Only an independent inquiry can set the minds of the public at rest.

Mr. Brittan: In answer to the right hon. Gentleman's last point, I have to say again that I have nothing to add to what the Prime Minister said. It does not seem to me that the fact that various allegations have been ventilated in various newspapers makes the consideration of security, which the Prime Minister explained at Question Time, any the less appropriate or valid.
Regarding demonstrations, I am grateful to the right hon. Gentleman for giving me advance notice of the view that he and his party will take on this aspect of the matter, and that will be given appropriate weight.
British Airways has received apprentices from Libya for some years, purely as a commercial arrangement. If I have any reason whatever to think that any of those apprentices are engaged in activities contrary to the national interest, I shall act towards them in the same way as I shall act towards any other Libyans.

Libya (Diplomatic Relations)

The Secretary of State for Foreign and Commonwealth Affairs (Sir Geoffrey Howe): With permission Mr. Speaker, I will deal with the foreign relations aspects of the subject on which my right hon. and learned Friend the Home Secretary has just made a statement.
The so-called Libyan people's bureau dates back to 2 September 1979. At that time, a series of self-styled revolutionary committees took over Libyan embassies in London and in at least eight other western European capitals. After long negotiations with the Libyan authorities, we and the other Western Governments concerned, working together, in June 1980 recognised one official in each people's bureau abroad as equivalent to a head of mission. At the same time, we and the other countries agreed to treat the people's bureaux as diplomatic missions.
During this period, Her Majesty's Government took firm action against those Libyans who infringed our laws. In June 1980, Mr. Musa Kusa, the newly accredited secretary-general of the Libyan people's bureau, stated publicly his approval of the killing of Libyan dissidents in the United Kingdom. On the following day, my predecessor required him to leave the country forthwith. With the co-operation of the Home Secretary, three other Libyans were also expelled.
In November 1980 the two children of a Libyan dissident were poisoned in Portsmouth. As a result of that crime, four Libyans—none of whom had any diplomatic status—were convicted and sentenced to long terms in prison. In purported retaliation, the Libyans expelled three members of the British embassy staff in Tripoli and an attempt was made to burn down the embassy building.
Throughout the next three years, the behaviour of the Libyans remained unpredictable and sometimes very difficult. On many occasions, the Libyans made hostile threats in characteristically intemperate language. There were, however, no further incidents of comparable gravity to those of 1980.
Then, in the middle of February this year, a group calling itself the committee of revolutionary students announced that it had taken over control of the Libyan people's bureau in London. Since that date, no member of the new revolutionary committee, nor any other Libyan, has been given any form of diplomatic status. We made it plain to the Libyans, both in London and Tripoli, that unless and until they took steps to establish a customary diplomatic mission, we would not be willing to deal with them on a normal basis.
On 10 and 11 March there was a series of bomb explosions in London and Manchester. In close consultation with the Home Secretary, and with the police and prosecuting authorities, those events were thoroughly investigated. Four Libyans are now in custody awaiting trial on serious charges. Six more were deported by the Home Secretary.
I must emphasise that none of these people had any form of diplomatic immunity, and that there was no firm evidence linking the people's bureau with those incidents. Nevertheless, I made it clear on 11 March, both in London and Tripoli, that the use of British territory for acts of

terrorism by any foreign group was totally unacceptable, and that any repetition of incidents of that kind was bound to have a serious effect on our relations.
I now come to the period immediately before the murder on 17 April. Around midnight on 16 April two members of the Libyan people's bureau came to the Foreign Office. They told the duty officer that they had come to protest against a demonstration to be held next morning and to say that the Libyans would not be responsible for its consequences. This information was immediately passed to the Home Office and the Metropolitan Police, which both already had knowledge of the planned demonstration. Our ambassador in Tripoli was also summoned after midnight that day to hear a similar message from the Libyan Government that they would not be responsible for the consequences.
As my right hon. and learned Friend the Home Secretary told the House on 25 April, such language has been repeatedly used by the Libyans in that context. The House should know that such night-time summonses were by no means unusual in Tripoli. When the ambassador commented that threats of violence did not impress the British Government the Libyan official said that no direct threat was intended.
The following day we were confronted with an unprecedented act of violence conducted from the diplomatic premises in the heart of London. My right hon. and learned Friend has reported on the events which ensued and on the action subsequently taken. I should like to add to my own profound expression of sympathy to the family of Yvonne Fletcher, who so tragically lost her life.
As my right hon. and learned Friend has already told the House, the expulsion of the staff and occupants of the Libyan people's bureau was completed on 27 April. On the same day our own embassy staff and families were also safely withdrawn from Tripoli. I should like to pay tribute to the calm and courageous way in which the ambassador and his staff, and their families, have conducted themselves throughout. I should also like to express our thanks to the Italian Government for agreeing to act as protecting power.
The House will wish to know that the embassy premises in Tripoli, which are the property of the Libyan Government, have been cleared of all classified material. The premises are now in the hands of the Italian Government as protecting power. The Libyan authorities have conducted a search of the premises. I have so far received no report that any damage has been done.
We have made it clear to the Libyan authorities that we hold them responsible for guaranteeing the continued safety of the British community. Two British embassy officials have remained behind to man the newly established British interests section of the Italian embassy. Their first task has been to continue to press for the release of those British citizens who are unjustifiably detained in Libya. The Italian ambassador yesterday reinforced the urgent representations which had already been made on numerous occasions by our departing ambassador.
We are urgently reviewing all existing contracts for the supply of defence equipment to Libya. There can be no question of allowing any fresh exports of that kind. As my right hon. and learned Friend has told the House, we have also terminated the training of two Libyan officer cadets at Dartmouth.
These brutal and unprecedented events underline dramatically the changed world in which we now live. The


implications of international terrorism, of course, spread far beyond the diplomatic field. In this recent case in London the basic problem arises from conflict between those supporting the Libyan regime and those opposing it. We cannot, and will not, permit foreign countries to export their internal disputes to the streets of London in this way.
My right hon. and learned Friend the Home Secretary and I maintain close co-operation, which we have had throughout, to deal with this threat.
I turn now to the questions most directly concerned with diplomatic relations. As my right hon. and learned Friend the Home Secretary told the House last Wednesday, I have instituted a full review of the Vienna convention, its operation and enforceability. I shall report the outcome of this review to the House. The Select Committee on Foreign Affairs may well wish to study the same question, which I would welcome.
But it is not enough simply to await the outcome of the review. We are therefore taking immediate unilateral action to strengthen control over the operations of foreign missions in this country.
The ultimate sanction is of course the complete severance of diplomatic relations, as has been done in the present case. But this is an action that should be taken only in the plainest possible case. This is not a question of diplomatic nicety. This concerns the way in which Her Majesty's Government discharge their responsibility for the protection of many thousands of British subjects who live their lives, often in the furtherance of Britain's worldwide trading interests, in every corner of the globe. In all too many places, the conditions which they have to face are anything but safe. It is precisely in such places that the protection of Her Majesty's Government is most necessary.
There are up to 10,000 Britons resident in Libya. It is the second largest Western European community in that country.
I recognise very plainly the anger that every British citizen must feel in the present case. I share that sense of anger. That is one good reason why decisions of this kind should be taken only after a full and proper appreciation of the interests of our country and our citizens around the world. This explains why the severance of diplomatic relations is such an exceptional event. No British Government have done this previously in response to abuse of immunity.
The House may be interested to compare our reactions to Libyan provocation with those of some other countries in a similar plight. The United States embassy in Tripoli was burnt down in December 1979, yet it was not until 1981 that diplomatic relations were suspended. Even then they were not broken.
The French embassy in Tripoli was burnt down in 1980. Libyan and French troops to this day confront each other in Chad. Yet diplomatic relations continue. In the case of more than one country the Libyans have taken hostages, who have been exchanged for convicted Libyan prisoners without provoking a break in diplomatic relations. The British response in the present case has been stronger than that of any other country in comparable circumstances.
It is obviously right to consider whether other measures short of a break in diplomatic relations may be appropriate on such occasions. It has, for example, been asked whether effective measures can be adopted to prevent

abuse of the diplomatic bag without requiring any amendments to the Vienna convention. The convention provides that diplomatic bags shall
not be opened or detained".
The question of scanning bags is not expressly covered. There is argument whether this is permitted or not. The practice of nearly all states is, in fact, not to scan. Our own practice hitherto has been never to allow our own bags to be scanned, nor to scan the bags of others.
This topic is currently on the agenda of the United Nations International Law Commission. We have more than once considered whether any change of practice is desirable. Any such change would inevitably take place on a reciprocal basis. We have to decide in these cases how best to protect British interests, in particular the security of our essential communications. Another sanction is the expulsion of any diplomat who abuses his status.
We can take similar action against other staff of a diplomatic mission who do not have full diplomatic status but nevertheless enjoy immunity. Normally we take such action where there is evidence of personal conduct incompatible with diplomatic status. From now on, we shall go further. We shall be ready to use this power as an exemplary measure against any mission that the Government have good reason to believe is responsible for unacceptable activities in this country.
We also have the power to set limits to the size of diplomatic missions and to refuse to accept as having diplomatic status any premises of a mission which are not in our view being used for diplomatic purposes. We now face a wider threat from international terrorism. We shall not hesitate to use our powers to prevent the abuse by missions of their diplomatic status in connection with terrorist activities.
We have ourselves decided upon this action in response to the changing threat of international terrorism. But we do not propose to leave the matter there. I have already raised the issue with our European partners, and shall be pressing it again at the Foreign Affairs Council in Brussels next week. My right hon. Friend the Prime Minister intends also to raise the question for consideration at the London economic summit in London in early June. The most effective answer to international terrorism is international action taken collectively by the major countries. We have taken the firmest action so far of any country faced with these threats, and shall continue to press for similar action on an international basis.

Mr. Denis Healey: Both The Times and the Daily Telegraph have described the episode to which the Foreign Secretary and the Home Secretary have addressed themselves as a humiliating defeat for Britain. I think that that must be the view of the majority of hon. Members on both sides of the House—[HON. MEMBERS: "No."] I think that the Foreign Secretary and his predecessors must accept a large share of the responsibility for this humiliation. The miserable story that the Foreign Secretary has recounted would, in a more robust age, have been regarded as grounds for impeachment. [Interruption.]
The Foreign Secretary has made it clear in his statement that, since the end of 1979, the Libyan Government changed the status of its diplomatic mission into that of a people's bureau. That mission has been the centre for organising criminal acts against people living in this country, many of which have led to deaths by poison, by


bombing or by gunfire. In 1980, President Gaddafi compiled a list of opponents living in other countries who were marked down for murder. In that year he sent death squads roving the countries of Europe and the middle east to carry out these sentences of death. The first victims in Britain, as the Foreign Secretary told us, led to the expulsion of the head of the people's bureau and certain other Libyans.
A couple of years later, it was discovered that the weapons used in the killing had been sold to the murderers by a British arms dealer for £80,000. No public attention was drawn to that fact. The arms dealer simply received a fine of £4,500, yet the people's bureau continued its actions.
In 1983 Mr. Sodami, with three other members of the bureau, organised 60 activist students living in this country to exercise surveillance over opponents of the regime among the Libyans living here. They established liaison with extremist groups such as the Workers Revolutionary party, for which they are thought to have provided money. No action was taken against Mr. Sodami at that time by the Government.
A few months later in February 1984, a coup occurred inside the mission. On that occasion, the Foreign Secretary called in some people who, I presume, were earlier members of the bureau. He made it plain in London and Tripoli:
Unless and until they took steps to establish a customary diplomatic mission, we would not be willing to deal with them on a normal basis.
The Government, however, continued to deal with the mission on a normal basis. A few weeks later, a series of bomb explosions occurred in London and Manchester in which 23 persons were injured. The response of the Foreign Secretary on 11 March was
to make it clear that terrorism by any foreign group is totally unacceptable and any repetitions of incidents of this kind are bound to have a serious effect on our relations.
The Foreign Secretary has often been described as having a laid-back style, but I suggest that this response to the bombings in London and Manchester was positively horizontal. According to the Foreign Secretary's account, a few weeks later he was warned by our embassy in Tripoli and the Libyan bureau in London that violence was likely to attend the demonstration before Easter. The police were told, but the implication of the Foreign Secretary's statement is that they were warned not to take those warnings seriously. The police were allowed to police the demonstration with an unarmed policewoman who stood during the demonstration with her back to the bureau.
The Foreign Secretary's behaviour throughout those four years, as he has described it to us, is not the first example of a failure to act on information available not through intelligence sources but through the press and the public. A Select Committee recently accused the right hon. and learned Gentleman of lethargy in a similar matter involving Grenada. I suggest that his behaviour towards the Libyan bureau in London showed cataleptic stupor. Warning after warning and act after act were totally incompatible with the position of any diplomatic mission in this country, and yet no effective action followed at any time.

Mr. Cranley Onslow: On a point of order, Mr. Speaker. Are we not reaching the point when a question might be asked?

Mr. Speaker: A very heavy day is in front of us. This is an important statement, but I hope that we can contain questions reasonably.

Mr. Healey: The Foreign Secretary read out 17 pages of a statement. I assure the House that, unless I am interrupted again by Conservative Back Benchers, I shall take no longer than the right hon. and learned Gentleman did in putting these points.
Does the Foreign Secretary really believe that we can allow diplomatic missions to behave in that way? Libya is not the only mission that has behaved in that way in recent years. The Iranian mission in London has been acting as a centre for harassment and in some cases has organised the beating-up of Iranian students in various cities. The same is true of the Iraqi embassy. The South African embassy has been allowing itself to be used as headquarters for the operation of the South African secret service against opponents of the apartheid regime in this country.
I shall discuss some of the facts that have come to light in this crisis. The other day the police told the Daily Telegraph that an arsenal of weapons existed in the bureau. We learned from this morning's newspapers that those weapons included gelignite. Why were 11 occupants of the bureau, who did not enjoy diplomatic immunity, sent back to Libya without any attempt having been made to establish whether they had shown complicity in the abuse of diplomatic status and in the murder? A moment ago, the Home Secretary told us that the police suspected that two members with diplomatic immunity were responsible, but the police did not know. When the men were sent back, the police had not completed their inquiries. They had not interviewed the person shown the other day on the television who was behind the policewoman when she was murdered. The police had not examined the embassy. It is clear from what the Home Secretary told us that a good deal of evidence was discovered during the examination.
There can be little doubt that some of the 11 occupants might have been involved in the accumulation of weapons in the embassy. No attempt was made to hold those people. The only excuse offered, under cover, by the Foreign and Commonwealth Office is that it was frightened that, if we had taken any action against any abuse of diplomatic privilege by those people who did not enjoy immunity, some action might be taken in Libya against British citizens.
Does the Foreign Secretary agree that that argument is an invitation to blackmail? It is simply telling any Government that, if they wish to murder people in Britain or to commit crimes against people in this country, they will get off scot free by threatening to do something to British civilians living and working in their country. That is precisely the action the Government have forsworn in the case of kidnapping. The Foreign Secretary's behaviour in allowing those 11 occupants of the embassy who did not enjoy diplomatic immunity to leave without examining their possible complicity in breaches of the law was improper, and I hope that the right hon. and learned Gentleman will comment on that point.
What can we do to improve the position? There is some truth in what the right hon. Member for Plymouth, Devonport (Dr. Owen) said—the Foreign Secretary's account of some steps he proposes to take is locking the stable door when the horse has bolted. Hindsight is better


than blindsight, and some action must be taken now to prevent a repetition of what happened in the case of the Libyans the other day. That action could happen in other embassies in the near future. I agree with the Minister of State, Foreign and Commonwealth Office, the hon. Member for Shoreham (Mr. Luce), that the Government should not break the law, and I hope that he sticks to that position. If the Government are not going to break the law, they must at least seek to change the law, which is patently inadequate.

Mr. Onslow: On a point of order, Mr. Speaker.

Mr. Speaker: Order. I believe that I can pre-empt the hon. Member's point. The right hon. Member for Leeds, East (Mr. Healey) has almost done his 17 pages. This is an important matter and many hon. Members wish to take part. I hope that the right hon. Member will bring his questions to a close.

Mr. Healey: With great respect, Mr. Speaker, the Foreign Secretary and the Home Secretary made it clear how important this matter is. They raised questions to which they refused to give answers.
A few moments ago, the Foreign Secretary told the House that he plans to consider whether any changes are required in the Vienna convention. How long will that consideration take? As I understand it, in a few months the International Legal Commission of the United Nations will have to put proposals to the General Assembly if any change of action is to begin this year. Does the Foreign Secretary intend putting proposals to the International Legal Commission and ensuring that they are considered in time to be put to the sixth committee of the General Assembly?
Secondly, the Foreign Secretary made it clear that electronic scanning was not excluded by existing law. It may well be that electronic scanning is not always capable of detecting every improper content of a diplomatic bag. However, it is far better to scan bags, if that is permitted, knowing that it may not be a perfect means of control, rather than allow weapons and other illicit matter to be passed in the bag with full diplomatic immunity.
I must put a final question to the Foreign Secretary—

Mr. Speaker: Order. The right hon. Member has been speaking for the best part of 20 minutes. I must ask him kindly to bring his remarks to a close.

Mr. Healey: Is there any truth in the stories widely reported in the newspapers and on radio and television today that the American Government are approaching their allies with a view to co-operation in illegal action designed to overthrow the Gaddafi regime? There have been reports on the radio this morning from America that a proposal—[Interruption.] Conservative Members must ask for a reply to that question. They may remember a reply to a similar question that I asked the Foreign Secretary not long ago about American action in Grenada.
Does the Foreign Secretary agree that to use illegal action to try to bring international anarchy under control would be to damage international law and the prospects for world peace far more seriously than anything that happened in St. James's square the other day?
I accept your requests, Mr. Speaker, that I should bring my remarks to a close. I shall simply ask the Foreign

Secretary whether he believes that his record on this or any other matter justifies confidence in the House or outside that he will protect the country's national or international interests in this and many other matters. Four years of recklessness and lack of grip have profoundly disturbed the British people.

Sir Geoffrey Howe: Although the right hon. Gentleman is dealing with a matter that the whole House recognises as being of great importance, the scale of his so-called questions, far exceeding the length of my original statement, shows that in this, as in so many other respects, he has lost every sense of proportion and is entirely at sea. A number of the questions that he deigned to ask towards the end of his long statement have been answered more than once by my right hon. and learned Friend the Home Secretary—for example, he has demonstrated clearly why scanning, for the reasons that he gave, would be ineffective in most circumstances, and stated that the matter had been considered.
In my original statement I made it plain that I would be reporting to the House on my review of the Vienna convention as soon as I was in a position to do so; that I should welcome the intervention of the Select Committee on Foreign affairs, and that I should also be taking other international action in respect of the convention.
With regard to action following the bombing in the middle of March, I made it plain that, apart from the strongest possible diplomatic representation at that time, the Home Secretary and myself, acting and appraising the evidence together, took firm action to secure the deportation of six people at that time. Further deportations have been announced by my right hon. and learned Friend today. We shall continue to take action along those lines resulting from that incident or any other.
The right hon. Gentleman asked another question that has been answered many times by my right hon. and learned Friend: Why were people, not enjoying diplomatic immunity, sent back to Libya with others at the conclusion of last week's events? The answers given by my right hon. and learned Friend were that, first, without the cooperation of those within the people's bureau it would not have been possible to gather sufficient evidence to proceed against them. Secondly, and far more importantly, in taking the extremely difficult decisions that had to be taken by my right hon. and hon. Friends during the course of the past 10 days, one of the matters that they had to take into account—it would have been irresponsible not to do so—was the safety not just of our diplomats but of the large British community in Libya, a number of members of which are already unjustifiably detained. Far from the handling of that matter being regarded as a humiliating defeat, the feeling has been widely expressed in the House that my right hon. and learned Friend's handling of the matter has been conspicuous for its skill and courage.
In his wide-ranging remarks at the beginning of his questions, the right hon. Gentleman suggested that for years squads under orders from Colonel Gaddafi to do a series of alarming things have been roaming the countries of Europe. There is no doubt about the dangers that we all face in that respect. They are the dangers with which we have been grappling. It is significant and noteworthy that at no stage during the years that those gangs were roaming, as the right hon. Gentleman said, or during the weeks since the incidents took place in March, did he raise the subject in the House.
Today the right hon. Gentleman, as Shadow Foreign Secretary, with many years' experience in the high offices of state, during which behaviour of this kind has occurred, raising these questions in relation to many other countries, suggests for the first time that diplomatic relations should be broken off with no fewer than three countries. His contribution to the exchange this afternoon has been wholly undistinguished save by its recklessness.

Sir Peter Blaker: Before the right hon. Member for Leeds, East (Mr. Healey) began to ramble so badly, my right hon. and learned Friend described graphically to the House—I congratulate him on the length of his memory—the threat that every developed country in the free world faces from Colonel Gaddafi's Libya. Apart from the United States, which has suspended diplomatic relations, can my right hon. and learned Friend say which of those countries has expelled the Libyan mission?

Sir Geoffrey Howe: The United Kingdom is the only European or industrial country that has taken that step, as I said in my original statement. It is right to add, of course, and the House may not be surprised by this, that a number of Arab countries have expressed a similarly severe view of the conduct of the Libyan Government. At least one, which has had its embassy in Libya burnt down, no longer has representation there.

Mr. David Steel: Why was the bureau allowed to continue operating for two months after the ousting of the four accredited diplomats in mid-February and before the shooting outrage, without the Foreign Secretary knowing who was in charge of it? Has that happened in the case of any other embassy in London? Why were steps not taken to close the bureau until such time as the Libyan Government supplied a fully accredited representative? Does he accept that public anxiety about this matter will not be allayed by an internal inquiry by those responsible for the intelligence services into their own activities and that, therefore, an independent inquiry as demanded by both sides of the House will be necessary?

Sir Geoffrey Howe: On the first point raised by the right hon. Gentleman, if he had listened to my statement he would have understood that the events that he described were paralleled precisely by those that took place at the time of the original establishment of the Libyan people's bureau. The revolutionary committee ousted the then ambassador and took over the embassy under the name of the people's bureau. It was with those circumstances that this country and eight other European countries were having to cope in determining what should thereafter happen. That position persisted from September 1979 until May 1980 before it was resolved.
Revolutionary committees were involved in both cases and the right hon. Gentleman may have the greatest difficulty in distinguishing between one revolutionary committee and another, as I have, but I am afraid that the circumstances were closely similar to those that existed between 1979 and 1980.
In regard to the inquiry, I have nothing to add to what has already been said by my right hon. Friend the Prime Minister and my right hon. and learned Friend the Home Secretary.

Mr. Norman St. John-Stevas: Will my right hon. and learned Friend agree that no reasonable

person would recognise in the unscrupulous hindsight of an almost interminable intervention by the right hon. Member for Leeds, East (Mr. Healey) the exercise, skilfully carried out and prudently pursued, of damage limitation conducted by the Government in a virtually impossible situation? Do I take it from his statement that my right hon. and learned Friend would welcome an examination by the Select Committee on Foreign Affairs of the formulation of the concept of diplomatic immunity for the future and its application in the recent past?

Sir Geoffrey Howe: I am grateful to my right hon. Friend for his initial observations. On the second point, as I indicated in my statement, I would certainly welcome an inquiry by the Foreign Affairs Committee into the matters covered by the review I have in hand of the Vienna convention. As he and I can well imagine, that review might need to range over many of the topics suggested.

Mr. J. Enoch Powell: Is it the position of the Government that this Parliament is competent or not competent to legislate if necessary to alter the laws of diplomatic immunity in this country?

Sir Geoffrey Howe: Some aspects are determined not by international law but by national law. There our freedom remains unfettered. In so far as they are determined by international law and in particular by treaties to which we are a party, we have to take account of those treaty obligations when considering the powers of this Parliament. That is why the process of change in something like the Vienna convention would be a matter for international negotiation. As the right hon. Gentleman repeats so frequently, in that respect, just as in the case of any other treaty to which this country is a party, the competence of this Parliament is limited, short of denouncing or determining the obligation. Because any change in such a convention is likely to take a long time I have thought it right today to announce further action being taken unilaterally by the Government forthwith within the limits of our power.

Sir Anthony Kershaw: Is it not clear that any agreed change in the Vienna convention will not be easily obtained and might be impossible? If that is the case, will Her Majesty's Government consider proceeding unilaterally, whether by derogation from the existing convention or otherwise?

Sir Geoffrey Howe: My hon. Friend knows well how seriously one has to consider the possibility of taking unilateral action in respect of a treaty. Plainly, it may have to be considered in certain circumstances but it is also important to remember that a multilateral convention of this kind must not be judged simply by the benefits that it confers on one country at one time. Part of the essential of such a treaty is that it confers rights and obligations multilaterally. Therefore, one needs to be very careful before deciding to depart from it unilaterally.

Miss Betty Boothroyd: Will the Foreign Secretary give some indication of the initial reaction of European Governments following the initiative that he took within the EC? Secondly, since taking that initiative, can he say which of the EC Governments have publicly condemned the act of violence and the abuse of diplomatic immunity within a member state? Thirdly, and finally, since some days have elapsed since the Government severed relations with the Libyan regime, can


he tell us which of the EC Governments are supporting Britain's action by themselves either severing diplomatic relations with Libya or taking steps about the entry of Libyan nationals into EC countries?

Sir Geoffrey Howe: The matter is still a relatively recent event in regard to other countries but my right hon. Friend the Prime Minister and I have sent messages to a number of Governments seeking their support and interest in opposing the misuse of diplomatic premises for terrorism. We have sent messages to a number of Heads of Government with influence over Libya and have received public expressions of support from a large number of friends and allies — the United States, Canada, Belgium, Norway, Australia, Ireland and France, for example. The actions that will follow consideration by the European Community will have to be decided by the nations concerned.

Mr. Dennis Walters: Will my right hon. and learned Friend accept that, as the record of the Foreign Office in protecting and upholding British interests is first class, he is absolutely right not to be on the defensive about simplistic attacks from whatever direction they may be launched? Will he also reassure the House that changes in the Vienna convention will be pursued with the utmost vigour and that we may hope that some changes will be made relatively soon?

Sir Geoffrey Howe: I am grateful to my hon. Friend for his opening remarks. I must come back to the point that he clearly has in mind, that to secure changes across the international spectrum in the existing provisions of the Vienna convention is likely to take some time. Some aspects of the convention are already being reviewed by international legal bodies. It is for that reason that I am seeking to secure a concerted response from the countries in the European Community and that my right hon. Friend will be seeking to secure a similar response from the countries attending the economic summit at the beginning of June. It is only if we are able to mobilise international opinion among leading nations that we shall get effective action quickly enough to change the convention. That is an additional reason for the decision I have announced today in respect of unilateral action on our own account.

Mr. Jack Ashley: There has been a potentially explosive situation involving the Libyans for some time in this country. Can the Foreign Secretary tell the House what consideration he gave to the advantages and disadvantages of breaking diplomatic relations with Libya before this regrettable and tragic event?

Sir Geoffrey Howe: As I indicated in my original statement, the actual breach of diplomatic relations is a step taken only very rarely. It has been undertaken only by this country since the end of the second world war in only three cases—first, in respect of Albania; secondly, in respect of Uganda; and thirdly, in respect of Argentina. No previous Government have broken diplomatic relations on grounds of breach of diplomatic immunity of the kind with which we are concerned. Therefore, it would not be right to suggest that an actual breach of relations is something that has been under active consideraion throughout recent years. We have endeavoured instead to

ensure that relations with Libya are conducted in an orderly fashion so that we may continue to enjoy the benefits of relations between the two countries.

Mr. Patrick McNair-Wilson: Is it not totally unrealistic to believe that anything positive will flow from a review or renegotiation of the Vienna convention? Was that convention not agreed at a time when political power in the world was in the hands of a handful of European states? Would it not be wiser to address this problem by recognising that the best answer is improved intelligence-gathering, a much more positive attitude towards political activists from other countries and a greatly increased strengthening of the security forces within this country?

Sir Geoffrey Howe: Obviously the last matters raised by my hon. Friend should be, and are, under consideration by my right hon. Friend and myself. Certainly the actions that my right hon. and learned Friend the Home Secretary and I have announced for closer and more rigorous surveillance of diplomatic and non-diplomatic people in this country are a response of the kind that my hon. Friend is seeking. In regard to the Vienna convention, it is not by these standards an antique text. It dates from 1961 when the world had already begun to gather a large number of states far beyond the traditional European nations. So it is a relatively modern text. That does not diminish the force of the point that he makes, that it will be difficult to secure early changes. That is why I say again that we have decided to take action ourselves.

Mr. John Evans: What does the Foreign Secretary say about the allegation that the reason for the British Government's failure to respond quickly enough to messages between Tripoli and the people's bureau stems directly from the collapse of morale at GCHQ Cheltenham, which is not now functioning efficiently?

Sir Geoffrey Howe: I say precisely what my right hon. Friend the Prime Minister said in her letter to the right hon. Member for Plymouth, Devonport (Dr. Owen) earlier today. She said:
On your specific point about GCHQ, I can assure you that GCHQ's operations and activities in this and other matters have been totally unimpaired by the recent changes at GCHQ. I am glad to have this opportunity of expressing the Government's appreciation of this fact.

Mr. George Walden: Without wishing to sound cynical, does my right hon. and learned Friend accept that regimes such as Colonel Gaddafi's signed the last Vienna convention and will sign the next? Does he accept that the problems of enforcement will not be overcome because a veto will apply? We have seen how irresponsibly the Russians reacted to the event.
Will my right hon. and learned Friend therefore take with him to the meeting of Foreign Ministers in Brussels next week a firm proposal for an agreement between the Ten to react against any gross violation of diplomatic immunity—first, by an approach through the Presidency to the county concerned, secondly, by joint retaliation in all the capitals of the Ten against the country in question, and, thirdly, by political and perhaps economic sanctions?

Sir Geoffrey Howe: I always respond without enthusiasm to any proposal for economic sanctions, for reasons well established by experience. Subject to that, I shall certainly consider my hon. Friend's suggestions. As


he knows better than many in the House, we are living in a world in which the chances of relying effectively upon countries' commitments to international treaties are being increasingly diminished.

Mr. Kevin Barron: Can the Foreign Secretary explain why arms contracts are still current between Britain and Libya in view of the unpredictable nature of the regime and what it has done over the years to the French and American embassies there?

Sir Geoffrey Howe: Arms contracts and defence sales form a small part of our trade with Libya. They are subject, as are all such contracts, to strict control. Export licences are required and are considered on their merits. Licence applications for Libya are subject to particularly close scrutiny to ensure that no offensive equipment is sold.

Sir Peter Emery: Will my right hon. and learned Friend return for a moment to X-ray and electronic surveillance? We have heard the Home Secretary say clearly that the reason that it is inadequate is that weapons can be covered in other metals so that they may not be detected. If we have reason to believe that the Vienna convention is being breached, we are not able to search a diplomatic bag, nor are we not able to ask for it to be returned. If that is so, when there is suspicion about metal objects, should we not ask for the bag to be returned and be willing for exactly the same procedures to be used against our diplomatic bags in countries against which we have adopted that procedure? Surely that would go a long way towards giving an assurance that weapons are not being brought into this country illegally.

Sir Geoffrey Howe: The difficulty about electronic surveillance of any kind, where there is a premise for the return of a bag, as my right hon. and learned Friend said earlier, is that the electronic surveillance can so easily be deceiving. Weapons can be covered in such a way as to disguise their presence. Even if one detects something that looks suspicious, the success of the operation relies on the ability to open the bag, which is not an option available at airport inspections.

Mr. Robert Maclennan: Does the right hon. and learned Gentleman realise that his decision not to cancel immediately defence contracts with Libya is wholly unacceptable? Does he agree that he should have followed the example set by my right hon. Friend the Member for Plymouth, Devonport (Dr. Owen), when he immediately cancelled sales of arms to El Salvador in 1978?

Sir Geoffrey Howe: The hon. Gentleman would be wise to reflect precisely on the implications of what he has just said. I have said that no further defence sales will be authorised. Defence sales that have taken place have frequently involved matters of which even the hon. Gentleman would find it difficult to disapprove. Instant cancellation of existing contracts could have serious repercussions on industrial opportunities in Britain.

Sir David Price: Can my right hon. and learned Friend confirm that about 8,000 British nationals live in Libya? In view of the highly tempestuous, revengeful and unpredictable nature of the Gaddafi regime, what advice is he prepared to give to our nationals about whether they should stay in Libya or come home?

Sir Geoffrey Howe: I agree that there are upwards of 8,000 British citizens in Libya. As I said in my statement, we have made it clear to the Libyan authorities that we hold them responsible for the safety of the British community. We have made it clear that this is a quarrel between Governments and that the British community should not be regarded as being in immediate danger. We have also made clear our determination to press for the release of people unjustifiably detained by the Libyan Government. In addition, we have advised members of the British community in Libya to consider their position carefully. We keep in touch by broadcast messages.

Mr. Gerald Bermingham: When considering whether to abrogate parts of the Vienna convention or to seek changes in it, will the Foreign Secretary bear in mind that these matters are reciprocal and that any actions that we take could have a detrimental effect on members of our diplomatic missions currently serving abroad?

Sir Geoffrey Howe: I am grateful to the hon. Gentleman. He underlines an important point, which I have already made.

Mr. Derek Conway: Does my right hon. and learned Friend accept that those of us who have a personal experience of the beautiful country of Libya and its ugly regime welcome the considered steps taken by the Government? Bearing in mind the size of the British community in Libya, does my right hon. and learned Friend agree that if he took the advice of the right hon. Member for Leeds, East (Mr. Healey) he would not be succumbing to blackmail but extending hostages to fortune to that wicked and evil regime? Does my right hon. and learned Friend accept that he would be wise to disregard the right hon. Gentleman's advice?

Sir Geoffrey Howe: I am enthusiastically prepared to accept my hon. Friend's advice.

Mr. Tony Blair: What advice did the Foreign Office give the Home Office when it passed on the communication from Libya that the demonstration would not be tolerated and that our ambassador to Libya had been called to a midnight meeting in Tripoli? Did the Foreign Office advise the Home Office to take the threat seriously or to treat it lightly?

Sir Geoffrey Howe: As my right hon. and learned Friend said, it is not the practice to add to what has already been said about such matters. The style, attitude, language and pattern of the Libyan Government's performance was as well known to the Home Office and the police as it was to the Foreign Office.

Mr. W. Benyon: I appreciate my right hon. and learned Friend's remarks about economic sanctions, but do not Colonel Gaddafi's powers stem entirely from oil revenues? What steps can be taken to try to achieve a Western boycott of Libyan oil?

Sir Geoffrey Howe: I have no reason to suppose that the mobilisation of economic sanctions in relation to the regime, however unattractive it may be, will in the end prove any more effective than previous examples.

Mr. John Fraser: In view of Colonel Gaddafi's support for the IRA, can the Foreign Secretary be satisfied that money is no longer corning from Libya to the United Kingdom to finance terrorism? What special


discussions has he had with the Irish Government, with whom we share a common travel area, which might provide a backdoor entry for terrorists?

Sir Geoffrey Howe: It is not possible to give an unqualified assurance about the consequences of actions taken or promoted by the Libyan Government. Certainly, anything which gives support or comfort to the IRA is of equal concern to us and the Government of Ireland. It is a topic upon which we have close and regular consultation.

Mr. Teddy Taylor: As the Libyan regime made it abundantly clear at the weekend that it would give every possible help and assistance to the IRA, is there not an overwhelming case for considering whether we should put an immediate ban on current sales of arms and spares to Libya?

Sir Geoffrey Howe: I have already answered that question more than once. No future contracts will be authorised. I told the House of the nature of the current contracts, all of which are being reviewed. I would not wish to go beyond that now, bearing in mind all the contractual and other implications of those existing contracts.

Mr. Andrew Faulds: As a reconsideration of the Vienna convention is likely to take considerable time, should not the Foreign Office take a more immediate approach and scrutinise much more carefully any proffered diplomatic staff before granting accreditation, with an increased possibility of rejecting some of them?

Sir Geoffrey Howe: As I said in my statement, we intend to exercise our powers within the existing limits of the Vienna convention as seriously and closely as we should in the light of the events.

Mr. John Stokes: Will my right hon. and learned Friend tell the House whether the Government have received support from Commonwealth countries, especially those in Africa?

Sir Geoffrey Howe: We have been in communication with some of them, but without notice I cannot give a direct answer. I shall write to my hon. Friend about it.

Mr. Dennis Skinner: Is the Foreign Secretary aware that, even if he stood at the Dispatch Box all day, he would never convince the British people of his case? The death of the young policewoman was appalling. Is he aware that Colonel Gaddafi has trampled over him, the Home Secretary and the Prime Minister? Is he aware that one reason why the intelligence gatherers were not up to the mark was that the Government, with their Cobra meetings, were more interested in gathering intelligence about the movement of miners supporting their right to work?

Mr. Speaker: Order. That is miles away from the matter being considered. I call Viscount Cranborne.

Viscount Cranborne: Does my right hon. and learned Friend agree that the Government's conduct during this wretched affair after the shooting in St. James's square has been predictably brilliant and well balanced? However, will he assure the House that the Foreign Office was absolutely certain in February, when the explosions in London and Manchester occurred, that

there was no connection, or shadow of a suspicion of a connection, between those explosions and the Libyan establishment in St. James's square? If there was such a suspicion, what steps of a robust nature were taken to deal with it?

Sir Geoffrey Howe: Both my right hon. and learned Friend and I have made it clear separately today and last week that after the events surrounding those explosions in the middle of March his Department and mine were in the closest possible touch assessing the evidence in relation to all those who might qualify for deportation or other treatment. The prosecuting authorities were similarly involved in consideration of the evidence. We arrived at the conclusions jointly and after an assessment of all the evidence. At that time we both said that there was no firm evidence to link the explosions with the Libyan people's bureau. Further evidence now available may enable my right hon. and learned Friend and the police to take inquiries further in that and other directions.

Several Hon. Members: rose—

Mr. Speaker: Order. In the interests of balance, I shall call those who have been seeking to intervene, but I ask them to put their questions briefly.

Mr. Richard Alexander: My right hon. and learned Friend referred to people being unjustifiably detained in Libya. Is he telling the House that British subjects are being detained without trial and, if so, how many?

Sir Geoffrey Howe: There are two such subjects detained without trial and one other in respect of whom we take the same view of the condition of his detention. We have been making the strongest possible representations on their behalf.

Mr. Nigel Forman: In view of the considerable number of British citizens who hope to continue to live and work in Libya, is the Foreign Secretary aware that many people in the House and the country understand the firm but cautious nature of the Government's response to these difficult events? Will he put particular stress on the suggestions, already made by my hon. Friend the Member for Buckingham (Mr. Walden), that the matter should be tackled resolutely and come high on the agenda both at the European Community and the London summit?

Sir Geoffrey Howe: I certainly accept the importance of my hon. Friend's points.

Sir Kenneth Lewis: In case it may be forgotten, is my right hon. and learned Friend aware that the country's admiration for the police operations in St. James's square is equalled by our high appreciation for the work done by our ambassador and diplomatic staff in Libya?

Sir Geoffrey Howe: I am grateful to my hon. Friend. That opinion is widely shared and I shall pass it on to them.

Mr. Eldon Griffiths: While welcoming the Prime Minister's undertaking to carry out a review, may I ask my right hon. and learned Friend to consider two matters concerning the police service? First, will he say whether the Foreign Office evaluation of the advance warning was conveyed to the Metropolitan police in an adequate fashion and, secondly, whether the decision


to call off the police operation before it achieved a result was a political one or an operational police decision? Those issues should not be hidden behind intelligence matters but should be made public in the interests of police morale. Will the Foreign Secretary ensure that that is done?

Sir Geoffrey Howe: The second point is a matter for my right hon. and learned Friend the Home Secretary, who is directly responsible for handling matters in connection with the police. In answer to his first point, I have nothing to add to what my right hon. and learned Friend said.

Mr. Healey: Is the Foreign Secretary aware that his enthusiasm to accept that British civilians in Libya are hostages against the British Government applying British law to crimes committed by Libyan citizens in Britain is a surrender to blackmail and sets a dangerous precedent for dealing with other unscrupulous regimes? Secondly, will he answer my earlier question and tell the House whether he has information about the intention of the United States' Administration to use illegal or covert means to seek the overthrow of the Gaddafi regime? If so, will he assure the House that the Government will oppose it?

Sir Geoffrey Howe: The second question scarcely arises from the events, and I have no information in that respect. I recall a speech made by Secretary of State Shultz on 5 April, in which he expressed United States anxiety that action should be taken by free countries in respect of international terriorism by Libya. In reply to his first question—

Mr. Healey: Is the Foreign Secretary aware that his readiness to accept that British civilians in Libya are hostages—

Sir Geoffrey Howe: The proposition implied in that question in the circumstances of this case, as it has been handled by my right hon. and learned Friend and others, is superficial and a quite unjust observation.

Ministerial Statements

Mr. Alan Williams: I return to a point of order mentioned by my hon. Friend the Member for Fife, Central (Mr. Hamilton) about the fact that the hon. Member for Bury St. Edmunds (Mr. Griffiths) had available to him a prior copy of the statement by the Minister. I raise the matter regardless of the fact that it may be a long-standing practice, as the hon. Gentleman might argue. It is a matter for the whole House. We should have a statement, not necessarily immediately but within a few days, from the Leader of the House on the present and future practice and criteria for making available advance copies of statements to hon. Members.
Many hon. Members, such as the hon. Gentleman, perfectly legitimately represent outside interests, whether professional, business or trade union interests. However, they do not have the same privilege of advance copies of statements, which is extended only to the Opposition Front Bench spokesman—or so we thought—because they must make substantial replies.
Will you, Mr. Speaker, clarify what it is that entitles this lobby to have this unsustainable advantage over all other outside interests and its representative to have priority over all other hon. Members?

Mr. Speaker: I have already dealt with this matter. I said that I shall look into it and must repeat that it seems unfair that any Back-Bench Member should have a copy of the statement if other Back Benchers do not. I shall look into the matter.

Mr. Eldon Griffiths: Further to that point of order, Mr. Speaker. Can I say with the greatest respect to you that I am a little surprised that you should already have apparently arrived at the conclusion that something is unfair before you have heard the facts of the matter from the hon. Member concerned? I merely say that in passing. I am sure that you intended no judgment in that respect but I would—

Mr. Speaker: Order. I must dispose of this matter. I do not think that we need go any further. I wish to be fair to all hon. Members. I shall certainly look into the matter and deal with it with total fairness.

Mr. Dennis Skinner: On a point of order, Mr. Speaker. Will you take steps, when considering this matter, also to examine another matter? When the police are mentioned, for example, in Prime Minister's Question Time invariably but not always the hon. Member for Bury St. Edmunds (Mr. Griffiths) is called to put a supplementary question on behalf of the Police Federation which he represents. I would like an assurance that those hon. Members who represent mining areas, for examp1e, get an equal crack of the whip when miners are mentioned. Some of us have never yet been called. Perhaps you will consider that matter when you consider the other one.

Mr. Speaker: The hon. Gentleman is incorrect in saying that the hon. Member for Bury St. Edmunds (Mr. Griffiths) is called more frequently at Prime Minister's Question Time.

Mr. Skinner: I have never been called this year.

Mr. Speaker: Well, keep trying.

Mr. Eldon Griffiths: rose—

Mr. Speaker: Order. I have dealt with the matter and I shall not take any more points of order on it. I cannot make any judgment on a matter which I said that I will look into. How can I?

Teachers' Pay

Mr. Clement Freud: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 10, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
the breakdown in the teachers' pay negotiations.
I listened carefully to the private notice question earlier this afternoon. Had I gleaned from it the least vestige of hope of a settlement or even a glimmer of flexibility on the part of the Secretary of State for Education and Science I should have withdrawn my application, but there was none and I therefore proceed with it.
The matter is specific and important because in the next six weeks or so hundreds of thousands of pupils will sit their CSE and 0 and A-level examinations and the last few weeks before an examination might be said to be liable to be too crucial to the future of pupils. It is exactly the time when the co-operation of teaching staff is most required, and it is to be withheld.
The matter is urgent because the longer the dispute is allowed to continue, the harder it will be to mend the relationships between local education authorities and teachers and between teachers and their pupils. The Government are getting good value from the teaching profession and I ask that, before any more harm is done to our children, you allow the House to debate the subject.

Mr. Speaker: The hon. Member for Cambridgeshire, North-East (Mr. Freud) asks leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he thinks should have urgent consideration, namely,
the breakdown in the teachers' pay negotiations.
I have listened with care to what the hon. Gentleman has said but regret that I do not consider the matter appropriate for discussion under Standing Order No. 10. I therefore cannot submit his application to the House.

Ravenscraig Steelworks

Mr. Robert Maclennan: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 10, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
the threat to the future of Ravenscraig steelworks resulting from the interruption in the supply of coking coal.
The matter is specific since, following the decision of the Scottish National Union of Mineworkers on Friday to reduce the supply of coking coal to Ravenscraig to one trainload a day, the plant is now threatened.
The matter is urgent because, in the words of a senior spokesman of British Steel at Ravenscraig this morning:
We are at the 59th minute of the 11th hour.
Mr. Clive Lewis, the Scottish organiser of the Iron and Steel Trades Confederation, has warned:
Whenever blast furnaces are banked down, extensive damage can be caused when they are re-fired. It could be that the Craig has been given the kiss of death.
The matter is important because the very survival of Ravenscraig is at stake and if the cut to the supply of coking coal is continued beyond tomorrow it will, in the words of the hon. Member for Motherwell, South (Dr. Bray),
be to commit industrial suicide in Scotland".
The cost of repairing the damaged plant would risk handing the advocates of closure in the Government and the management of British Steel the opportunity finally to shut down Ravenscraig. The unemployment caused thereby would be calamitous.
The House should have the opportunity to issue its appeal to the striking miners to stay the execution of Ravenscraig. That opportunity has so far been denied the House due to the industrial axis forged with Mr. Arthur Scargill and Mr. Mick McGahey by the leader and deputy leader of the Labour party, which has rendered the entire Labour Front Bench silent on the issue. At this fateful moment, the House must make clear where it stands and the Government must respond.

Dr. Jeremy Bray: rose—

Mr. Speaker: Order. I realise that this matter affects the hon. Gentleman's constituency, but it is not possible for him to make another speech on a Standing Order No. 10 application.
The hon. Member for Caithness and Sutherland (Mr. Maclennan) asks leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he thinks should have urgent consideration, namely,
the threat to the future of Ravenscraig steelworks resulting from the interruption in the supply of coking coal.
I have listened carefully to what the hon. Gentleman has said but regret that I do not consider the matter appropriate for discussion under Standing Order No. 10. I therefore cannot submit his application to the House.

Dr. Bray: On a point of order, Mr. Speaker. When an application is made under Standing Order No. 10, is it not the practice of the House that the hon. Member for the constituency concerned should at least be informed that an hon. Member intends to make such an application? In circumstances such as this when extremely delicate issues are at stake—they are fully recognised on both sides of the House—it is the most clodhopping clumsiness for the hon. Member for Caithness and Sutherland (Mr. Maclennan) to make party political points on the matter.

Mr. Speaker: I very much hope that the conventions of the House will always be observed. It is perfectly true that if an hon. Member wants to raise a matter in another hon. Member's constituency he should always let that hon. Member know. I hope that that was done in this case.

Mr. Maclennan: On a point of order, Mr. Speaker. This is not a matter that affects a single Scottish constituency. The hon. Member for Motherwell, South (Dr. Bray) knows full well that if the Labour party fails in its duty to defend a national industry of Scotland the mantle falls on others.

Mr. James Hamilton: Further to that point of order, Mr. Speaker. As I represent part of Motherwell, I, too, have many constituents who work at Ravenscraig. The works is, of course, in the constituency of my hon. Friend the Member for Motherwell, South (Dr. Bray) and the hon. Member for Caithness and Sutherland (Mr. Maclennan) does not have one constituent who works there. It is extremely doubtful whether any Social Democratic Member from Scotland represents any workers at Ravenscraig. The hon. Gentleman is a Johnniecome-lately to the problems of Ravenscraig, which we are perfectly capable of dealing with.

Mr. Dennis Skinner: On a point of order, Mr. Speaker. You should also take into account the fact that the hon. Gentleman's constituency is at least 120 miles from Ravenscraig and that, when he is not in the House, he spends most of his time representing The Encyclopaedia Britannica, and is picking up money for it.

Mr. Stuart Bell: rose—

Mr. Speaker: Order. I hope that the hon. Gentleman intends to refer to the original point of order.

Mr. Bell: On a point of order, Mr. Speaker. The procedure under Standing Order No. 10 is valued by Back Benchers. Is it not wrong for an hon. Member to use that procedure for political purposes?

Mr. Speaker: Standing Order No. 10 is frequently used for political purposes. Nevertheless, I hope that the civilised conventions of the House will always be observed.

REPATRIATION OF PRISONERS BILL [LORDS]

Ordered

That the Repatriation of Prisoners Bill [Lords] be referred to a Second Reading Committee.—[Mr. David Hunt.]

Motor Vehicles Rear Seat Safety Provisions

Mr. Austin Mitchell: I beg to move,
That leave be given to bring in a Bill to reduce the number of persons killed and injured in motor cars by providing for the compulsory fitting of rear seat belts and the compulsory provision of anchorage points for child restraint systems in all new cars.
The measure is a modest one but it is a vital next stage on the long road to greater safety and a reduction in the terrible toll of death and injury on the roads. The measure should have been taken years ago. The compulsory fitting of front seat belts preceded their compulsory wearing by several years. The wearing of such seat belts was introduced far too late in this country, thanks to the overstated and exaggerated arguments of libertarians, who thought that it was a basic British freedom to go head first through a windscreen. That measure has been a tremendous success, as its advocates always thought it would be.
Our hospitals are treating 20 per cent. fewer car crash casualties. The number of car accident victims requiring inpatient treatment has come down by 35 per cent. since seat belt wearing became compulsory. There have been around 500 fewer deaths and 7,000 fewer serious injuries since the introduction of front seat belts. The only important question in relation to front seat belts is, what took us so long and how many lives would we have saved if we had acted earlier? That is the importance of this measure. We must not make the same mistake by delaying once again. This country should be in the vanguard of road safety, not dragging behind in the guard's van. We must prepare now for the day we ensure that seat belts are worn in the rear of cars as well as at the front.
It is clear that wearing rear seat belts will save lives and prevent injury. We must prepare for the day when everyone will wear them by requiring that they must be fitted in all new cars. It is getting late already for that proposal because 11 countries, including Australia, Canada and the United States, France, Sweden and West Germany already require rear seat belts to be fitted. Unless we are prepared to say that the lives and limbs of British citizens are less important than those of citizens of other nations, we must do that same.
For some of life's experiences, the back seat of a car can be a very comfortable and pleasant place. But when the car is moving, the back seat can be a very dangerous place. It stands to reason that passengers travelling in the rear of a car are marginally safer than those in the front. I stress that that difference is only marginal.
Most impacts are made at the front of vehicles. Rear-seat passengers are, therefore, in danger of being thrown forward. Indeed, children, who are smaller and lighter, may become missiles thrown to the front of the car against the seats, the windscreen or even the bonnet. At 30 mph, the average passenger who is thrown forward in a collision exerts a force of 2½ tonnes. That is a massive force with which to be hit in the back.
In 1982 there were 22,000 injuries to rear-seat passengers. There were mostly neck, face and head injuries. One fifth of them were serious injuries, or fatal. Twenty-eight per cent. were to children of 13 and younger, which is a horrifying total. The cost of treating those

victims of accidents must be about £70 million per annum. That cost, and the injuries, could be avoided if rear-seat belts were worn.
An American study shows that rear-seat belts would have saved three quarters of rear-seat passenger fatalities. A Swedish study shows that rear-seat belts would reduce injuries by 28 per cent. On that basis, I calculate that rear-seat belts, if they were worn by all passengers in rear-seats, would save about 300 lives each year. That figure includes 100 front-seat passengers who are killed in accidents by the impact of rear-seat passengers. The general rule of thumb would apply to rear-seat belts as well as to belts used in the front of vehicles. The proportion of serious and fatal injuries among belt wearers is half that of non-belt wearers. We must, therefore, take this necessary first step.
I am surprised that the Government, who already have the power to take this step by amending the 1978 construction and use regulations, have not done so. The fitting of anchorage points for seat belts has been required since 1981, but those are not necessarily suitable for the best child restraint systems. The Government have not required the fitting of seat belts, which they should have done.
The Bill will therefore help the Government on their way. When the belts are fitted, passengers will begin to wear them. As belts become more common, we shall be able to move to the next stage, which I regard as inevitable too: provision for the compulsory wearing of seat belts.
The measure is so obvious and necessary that I do not see any arguments against it. The libertarian argument, which delayed the compulsory wearing of front-seat belts for so long, cannot be raised against the Bill. The only compulsion is on manufacturers, which will be wholly beneficial. It will force our motor industry to make progress.
Those who criticise the measure because of its effects on the motor industry must ask themselves two questions. First, is it not far better and safer for seat belts to be fitted by manufacturers than to have them fitted later, even to available anchorage points, by dealers? The Consumers Association has found through its testing and research on cars that if one buys a car and then decides to have rear seat belts fitted by the dealer one is likely to find that the dealer does a poor job. Indeed, belts fitted in that way have occasionally proved useless in Consumers Association tests. If the belts are fitted by manufacturers—that is done in about 5 per cent. of cars, which are mostly, to our shame, foreign—it is a different story. The fittings are safe and secure and effective.
The second question is whether the world is not becoming more safety conscious. Firms such as Volvo have made safety the keynote of their advertising and sales campaigns. More and more countries require rear seat belts to be fitted as a standard feature. It is cheaper to have them fitted by the manufacturer. It is bound to be cheaper if the belts can be fitted in volume production. That policy will become essential for sales of British vehicles outside this country. Rear seat belts will be an additional aspect of customer appeal, with which our industry must keep up if it is to sell overseas.
The arguments are clear. The case is compelling. It is supported by eminent authorities, who have strong views and expertise on the subject. They range from the Royal Society for the Prevention of Accidents to the British Medical Association and the all-party parliamentary group


on transport safety. Moreover, an opinion survey which we commissioned on this point showed that the measure is supported by two thirds of our electorate. More important, it is not just time for this inevitable next step in the long struggle for safety; it is almost past that time.
The Government have to act. I hope that the House will tell them to do so by agreeing to the introduction of the Bill, so that there is action on this vital subject in weeks, not months—or worse still, years.
Question put and agreed to.
Bill ordered to be brought in by Mr. Austin Mitchell, Mr. A. J. Beith, Sir Bernard Braine, Mr. Terry Davis, Mr. Toby Jessel, Mr. Roger Moate, Mr. Merlyn Rees, Mr. Barry Sheerman and Mr. Gordon Wilson.

MOTOR VEHICLES REAR SEAT SAFETY PROVISIONS

Mr. Austin Mitchell accordingly presented a Bill to reduce the number of persons killed and injured in motor cars by providing for the compulsory fitting of rear seat belts and the compulsory provision of anchorage points for child restraint systems in all new cars: And the same was read the First time; and ordered to be read a Second time upon Friday 6 July and to be printed.—[Bill 1661.]

Orders of the Day — Finance (No. 2) Bill

(Clauses 10, 17, 18, 20, 21, 27, 57, 98, 105, 113, and Schedules 6 to 8 and 12)

Considered in Committee [Progress 30 April]

[Mr. HAROLD WALKER in the Chair.]

Clause 21

PERSONAL RELIEFS

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Mr. Jeff Rooker: I beg to move amendment No. 29, in page 12, line 27, leave out `£3,955' and insert '£4,225'.

The Chairman of Ways and Means (Mr. Harold Walker): With this we shall take the following amendments: No. 30, in page 12, line 27, leave out '£3,955' and insert '£4,085'.
No. 31, in page 12, line 27, leave out '£3,955' and insert '£4,230'.
No. 32, in page 12, line 28, leave out '£2,490' and insert '£2,570'.
No. 33, in page 12, line 28, leave out '£2,490' and insert '£2,660'.

Mr. Rooker: On Second Reading, the Chief Secretary described clause 21 as one of the brighter jewels in the budgetary crown. I intend to show that it is not such a jewel for the over-65s because of the way in which they have been cheated on the age allowance increase.
Since both major parties accepted the principle of indexation of tax allowances in 1977, the difference between the ordinary personal allowance and the age allowance has never been more than 1 per cent. Even when both allowances were frozen in 1981, they received the same treatment. That year, the Government increased income tax by freezing both personal and age allowances. This year a gap of seven percentage points is working against the over-65s. Therefore, the Bill discriminates against the over-65s compared with the rest of the population.
The Committee—and certainly the millions of over65s—needs to know why 40 per cent. of elderly people—some 2·5 million people—should be singled out for that discrimination in tax. It is grossly unfair. Sometimes the Government make great play of what they do for pensioners, but, as I shall show, they are selective in what they do. When they are not holding back a pension increase for two weeks, they are breaking the link with earnings. Now, in 1984, they are widening the gap between the age allowance and other personal allowances for the first time in many years. There is no satisfactory explanation for it. The explanation is certainly not money. In the interests of equity and justice, the Government should accept the amendment.
According to Treasury figures, 2·4 million people over 65 will pay an extra £130 million in income tax this year, so that 150,000 very rich pensioners who, before the Budget, had an income of over £140 every week from interest payments or other things, such as annuities, can have a tax handout of an extra £25 a week. That is what


the Government are doing for pensioners. Some 2·4 million people over 65 will pay more tax than they would have done if they had been fairly treated. The amount of money that the Government will save is virtually the same as what they are giving away to 150,000 rich pensioners who have access to capital or annuities worth approximately £80,000 and who, every week, receive income from interest payments of about £140. They will receive a minimum tax handout from the Budget of £25 a week.
When the Chancellor delivered his Budget statement, I remember the cheers from Conservative Members when he announced that he had abolished the duty on paraffin. He said that that would be of particular benefit to many pensioners, but he did not say that many pensioners were forced to use paraffin because he had jacked up the price of electricity. He did not remind the full House of Commons on that day that the extra duty on paraffin was 1p per gallon, but that the price of a gallon of paraffin was approximately £1.47. Pensioners know that they do not get a good deal on that. That was a sick joke. We shall deal with that on another clause in Committee.
I want to highlight the way in which the Government have treated pensioners in the Budget with their tax changes. Rich pensioners will receive an extra £25 a week because of the abolition of the investment income surcharge, but everybody else will have an increase in tax.
The Treasury will save £130 million by not making the age allowance increase 12·5 per cent. Some 2·5 million people aged over 65 will have to pay extra tax as a result of the measure, and 200,000 more people over 65 will pay tax than would otherwise have been the case if the Government had given them a square deal by making the age allowance increase 12·5 per cent. The Government have dragged into income tax an extra 200,000 people over 65 who would not have paid tax this year if the age allowance had been increased by 12·5 per cent., as it has been increased for me, the vast majority of hon. Members and 20 million other taxpayers. To remedy that defect, unfairness and injustice, amendments Nos. 29 and 33 seek to increase the age allowance for a married couple and a single person by 12·5 per cent.
Amendments Nos. 30 and 32 give the Government a get-out if they want it. If they say that they cannot afford the increase, we are prepared to do a deal on 9 per cent.—midway between 5 per cent. or 5·3 per cent. and 12·5 per cent. Let us have an arrangement to mitigate the injustice.
So far, I have talked in global figures. If a married couple over 65 do not receive an age allowance increase of 12·5 per cent., they will pay an extra £81 a year— £1.50 a week — in income tax as a result of the meanness and cheating of the Government. A single person over 65 will pay an extra £51 a year—£1 a week—in income tax, just because the Government could not bring themselves to increase the age allowance, not by the 5·3 per cent., the rate of inflation, but by 12·5 per cent., as it has been increased for everybody else. That shows how the global sum of £130 million affects individuals.
The Government will ask, as they did yesterday, where the money is to come from. It will cost only £130 million. That, as the Tory Government and Members know, is chicken feed when one is dealing with a Budget and taxation matters running into billions. The best way to

judge the smallness of the cost is to compare this increase with the relief for the 20 million people who will be getting a 12·5 per cent. increase in personal allowances, which will cost the Government £2 billion. The age allowance increase of a meagre 5·3 per cent., the rate of inflation, will cost £100 million. That is one twentieth of the cost of what the Government have set aside for the increase in personal allowances.
Instead of giving a 12£5 per cent. increase in personal allowances for the 20 million people paying tax, the Government could have restricted the increase to 11 per cent., which is still twice the rate of inflation. The Chancellor could have said that he was increasing personal allowances by twice the rate of inflation, which is double what he is required to do by indexation. There would have been cheers from the Government Benches and satisfaction on the Opposition Benches. By cutting the increase from 12£5 per cent. to 11 per cent. — a difference that most people would not even notice—he could also have said that he was going to increase the age allowance by 11 per cent. If he had restricted the personal allowance to 11 per cent., he would have had the money to pay the 11 per cent. increase in the age allowance. If only the Chancellor had sat down and looked at this in a fair way, there would have been an obvious alternative for him to take.
One can look at it another way. The ready reckoner at the back of the autumn statement shows that to increase the personal allowance by £20 for a married man would cost £64 million. To increase the age allowance for a married man over 65 by £20 would cost £5 million. That is one thirteenth of the amount of money involved. It would have been easy to have achieved equity, justice and fairness for the 2·5 million over-65s who have been treated most unfairly compared with the 150,000 very rich over-65s who were already getting £140 a week income before the Budget gave them another massive tax handout. We have tabled the amendment in order to right a wrong, an injustice that, I warn the Government — their Back Benchers will have told them—has not gone unnoticed by the over-65s

Mr. Andrew Bowden: It is with considerable sadness that I rise to support the amendment, not least because I find myself happy to agree with a substantial part of the speech made by the hon. Member for Birmingham, Perry Barr (Mr. Rooker). I am sad because the Government have not acted in a fair and just way towards retired people. I deeply regret that my right hon. Friend the Chancellor has not seen his way to increase the age allowance in line with the personal allowance.
I must say, yet again, as I have done on a number of occasions in recent years that many pensioners are getting the feeling that they are being forgotten, that their problems are being overlooked and that they are not getting just treatment. It is easy for us, as the years fade since the second world war, to forget that today's pensioners, many of whom have lived through two world wars, lived in days that were infinitely more difficult than those faced by generations today. Wars, depressions, in some cases real poverty, were the lot of a number of today's pensioners.
6.15 pm
I cannot understand why—and I cannot see the logic, let alone the fairness, of it—we are increasing personal


allowances by 12·5 per cent. for those of us who are in full-time occupation and by only 5·5 per cent. for the retired. Would it not have been a much fairer and more honest thing to have increased personal allowances by 10 per cent. across the board? I do not think that many who are now getting 12·5 per cent. would have complained about that. The Government could rightly have said that they were giving a substantial increase in the age allowance and the personal allowance for all sections of our society.
We have often talked about the poverty trap for those in employment. There is also a poverty trap for pensioners. The way in which the levels of age allowance and the tax system works is a direct discouragement to anybody to save. Pensioners with an occupational pension of about £15 a week are caught in the poverty trap because of the existing allowances and the way in which they operate. They have no chance of earning their way out of the trap.
Some time ago, my right hon. Friend the Secretary of State for Social Services described inflation as a social disaster. I fully endorse that, and full credit must be given to the Government for the action that they have taken in, if not beating, certainly damming, inflation. It is the retired people more than any other section of the nation who have suffered from the horrendous inflation rates of the past 10 or 12 years.
In 1972, a pensioner couple in receipt of a £50 a week occupational pension—not a massive sum—plus their state pension, would have lived quite comfortably. They probably worked long and hard to get that occupational pension. They may have saved and sacrificed to be independent both of the state and of their families when they retired. However, the value of that £50 a week occupational pension, allowing for the fact that the vast majority of occupational pensions are not index linked, is now less than £10. In addition, the couple will be paying tax, if my mathematics is correct, although it was always one of my weak subjects, of £6 per week or more. The value of the 1972 occupational pension of £50 per week is now less than £10. I hope that the House can appreciate the bitterness of many pensioners who, having worked and saved for their retirement, are now near the poverty line.
There is no doubt that Governments have largely created this situation. I believe that Governments have a moral responsibility to help, and not further to penalise, a group that faces this appalling situation. I submit that is yet another reason for a complete review of the contributory and non-contributory tax benefit system. It is in a mess, and is working heavily against the interests of the country's retired people. I shall have no alternative but to support the amendment.

Mr. Mark Fisher: It is a privilege to be called after the courageous and knowledgeable speech of the hon. Member for Brighton, Kemptown (Mr. Bowden). As hon. Members on both sides of the House have come to expect from the hon. Gentleman's views on other matters concerned with social policy, his speech was consistent with those views. I believe that hon. Members on both sides of the House will have great respect for his views. When the Minister of State replies to the debate, I hope that he will not only respect but heed the views expressed by the hon. Member for Kemptown.
The hon. Gentleman said that he may be weak on mathematics, but his mathematics seemed sound to me. If

he was in any way weak on mathematics, he was strong on his sense of social justice and fairness. Those were the words that he used when describing this measure, or non-measure. He said that it was not fair and just. In doing do, he echoed what my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) said about the inequity and unfairness of this non-measure. The hon. Member for Kemptown wanted to know the logic of the Government. Surely he knows the logic of the Government. Their logic is that to those who hath shall be given more, and to those who hath not shall be taken away, or not given. He knows, Opposition Members know, and pensioners throughout the country know that that is so, because they have not got, and it will not be given to them.
When the hon. Member for Kemptown was speaking, one could detect an echo of the late lain Macleod. Sadly, the sort of Conservative Member who holds that kind of view is now an extinct sort of Conservative. The country and political debate would be more civilised if the sort of Conservative that the hon. Member for Kemptown is and that the late lain Macleod was could return to public life and be prominent on the Government Benches.
The refusal by the Government to index the age allowance, as my hon. Friend the Member for Perry Barr has said, will save £130 million—

Mr. Nigel Forman: It has been fully indexed.

Mr. Fisher: Yes, and we are asking for it to be indexed at the same rate as is applied to other allowances. The hon. Gentleman is correct to pick me up on the words that I used, but I think that the Committee understood what I said. It has been indexed in line with other allowances, and it ensures that a further 200,000 old-age pensioners will pay tax. That makes a mockery of the debate in Committee yesterday on the insurance investment surcharge when one considers that 150,000 pensioners who have more than £80,000 of investment, and the income that comes from that, are doing very well.
It is interesting to compare the cost of that measure, which was £360 million, with the so-called saving of £130 million that not fully indexing in line with other allowances has brought to the Government. That is just over £200 million extra. One sees the figure of £200 million in a different light when one considers what the Government have done to housing benefit for old-age pensioners. Recent decisions on housing benefit have resulted in a so-called saving to the Government of £200 million. A total of 1·3 million pensioners with incomes just above the level of the state pension are now losing out because of changes in housing benefit. If one adds the saving of £200 million and the so-called saving of £130 million, one realises that the gift of £360 million is almost equally balanced by the disadvantage to less well-off pensioners in the form of housing benefit and the failure to index the allowances under discussion in line with those of other members of society. We should not ignore housing benefit. The two measures taken together illustrate precisely the Government's stance in relation to pensioners.
The Government do not have a sense of justice or of fairness. They should be ashamed of the measure now proposed.

Mr. Forman: I am pleased to take part in the Committee debate on this important set of amendments


which were clearly and ably moved by the hon. Member for Birmingham, Perry Barr (Mr. Rooker). I listened carefully to his arguments in which he said that, in line with the considerable improvements in personal allowances on which the Chancellor decided in the Budget, it would have been possible to provide a substantial improvement in the age allowance. With the advantage of hindsight, I am bound to say that his argument was powerful and attractive.
None the less, it must be recognised that every Budget is necessarily a matter of priorities. Every Budget is a matter not only of the political and economic priorities of the Government of the day, but of the priorities in one year against another in the period of office of a given Chancellor. I confidently hope that the present Chancellor will remain in office at least for this Parliament, and perhaps in the next Parliament. Taking the long view, as I am sure the Chancellor was tempted to do, the Committee should respect the fact that the Chancellor made it clear in his Budget statement on 13 March that, in the measures that he was taking to improve and to raise tax allowances, he was deliberately choosing to concentrate this year's available help — some 1£1·7 billion or £1·8 billion worth of help—upon raising the allowance of married people and the personal tax allowance. That was a political and economic judgment which I am sure will be appreciated by those who benefit from it. I understand that it is worth approximately £2 per week to the average married man, if there be such a person, and a little over £1 per week to the average single basic rate taxpayer. That must surely be welcomed.
In line with what I said earlier about the Budget giving top priority to a specific task in one year, I should like to see the Chancellor do more in next year's Budget deliberately to give the interests of the elderly and those over 65 a higher priority in his Budget strategy. I say this not just for reasons of natural justice, or because in my constituency, and, I suspect, even more so in the constituency of my hon. Friend the Member for Brighton, Kemptown (Mr. Bowden), there is a high proportion of people over the age of 65 whose claims must be respected and recognised. If the country is to benefit from increased economic growth through the Government's economic strategy, which I hope and expect that it will, it is only right in a fair society that the retired, who have made their contribution over many years, should share the benefits of that economic growth. It is therefore right and proper that in next year's Budget the Chancellor should concentrate very much on the interests of the elderly and raise the age allowance.
6.30 pm
Just a few days ago I received an especially powerful and persuasive letter from a constituent whose name I shall not divulge. He described his and his wife's position as senior citizens, and said that they had voted Conservative in the last election and on many previous occasions but now felt regret that the Government were not doing as much for the elderly as they would wish. I mention just two points for the record.
First, my constituent writes:
Thanks to Mr. Lawson, we shall have slightly less income tax to pay from the end of May this year—
we all approve of that—

but the increases in rent and rates together with the reduction in housing benefit entitlement has completely cancelled that out, leaving us less to manage on than before.
My hon. Friend the Member for Kemptown has already dealt in detail with this and it is clear that the interaction of benefit with taxation requires attention.
Secondly, and especially germane to this provision, my constituent writes:
My wife and I are not exactly poverty stricken, due to the fact that having served in the RAF for 34 years, I am in receipt of quite a good pension. However, for this privilege I am taxed at almost £80 a month.
Like so many others, my constituent has made his contribution to society and his efforts have been appreciated by society. Now that those people are retired it is the duty of society to look after them properly. The organisation of the tax system has a major part to play, especially for those like my constituent who have been prudent, have sought to provide for their retirement and hope that the provision that they have made will not be excessively taxed.
Clearly, a generous increase in the age allowance next year will help to redress the inevitable imbalance which—rightly I believe—has been incorporated in this year's Budget. I therefore put down a strong marker in the hope that next year the justified claim of this large section of the community will receive the attention that it deserves.

Mr. D. N. Campbell-Savours: I join my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) in congratulating the hon. Member for Brighton, Kemptown (Mr. Bowden) on a very moving speech. Over the past months I have read many newspaper articles in which reference is constantly made to the hon. Gentleman's contribution to these debates. We well appreciate that contribution, as it is difficult for Opposition Members to influence the Government in the same way as a Conservative Back Bencher as determined to be heard as the hon. Gentleman. To some extent, his voice must be heard by the Government if only as an embarrassment to them.
My hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) mentioned the Chancellor's reference to this part of the Budget as the jewel in the crown. I should qualify that by saying that it is more like a zircon dressed up as a diamond. It fools only those who do not know the difference. Those who know the difference will, of course, recognise the clear deficiency of this part of the Bill. The Government are saving money on the backs of elderly people in a thoroughly divisive way. With regard to what constitutes social division, I quote a short extract from an article in Financial Weekly in 1980. It states:
Conservatives are not deeply devoted to equality, but neither—unless they have entirely forgotten the principles of Disraeli—are they deeply devoted to widening social divisions. Conservative Members' constituents and indeed Conservative voters undoubtedly include many more of the unemployed and the low paid than of those who pay capital taxes.
This measure widens social divisions to procure the necessary funds to reduce capital taxation. The elderly are being used to fund tax cuts for the better off. It was hard enough for them in 1980 when the Government decided to break the historic link with earnings. The Minister must now answer a series of questions clearly and without conditions so that the elderly will know exactly where they stand.
The elderly need to know why the gap between the age allowance and personal allowances has been widened.
Why have they been picked out to be penalised by these provisions? How can the Government cut investment income surcharge for the tiny minority of pensioners with capital or annuities to the value of £80,000 or more and a weekly income of more than £140, who will thus gain from the Budget, when the £200 million involved could have been spread among all elderly people? Is it true that 200,000 more of the elderly would not pay tax if the age allowance were raised by 12·5 per cent. in line with the increases in personal allowances? Is it true that a married couple will be £81 per annum worse off and a single person £51 per annum worse off because the Government have failed to index that allowance fully in line with the personal allowances? Is it fair to treat the elderly in this way? Surely they deserve equal treatment with all other people in society.
As my hon. Friend the Member for Stoke-on-Trent, Central has said, when one compares the position of the elderly with that of others in society, these provisions clearly constitute cuts, to be considered in conjunction with housing benefit penalties, of almost £180 million, introduced by the Government late last year. Successive years under the Government have meant additional penalties for the elderly in every area when the Government should treat them responsibly and with respect.
The elderly cannot afford Conservative government. The Opposition believe—and will be expressing it in the Division later—that the elderly should remember that at the end of the day they should place their faith solely in those who are consistent in supporting and resolving their difficulties.

Mr. Archy Kirkwood: I have listened carefully to the arguments and was impressed, as I usually am, with the contribution of the hon. Member for Brighton, Kemptown (Mr. Bowden). During my short time in the House I have come to respect everything that the hon. Gentleman does in regard to the work that he carries out on behalf of the all-party pensions group.
My greatest difficulty with the Budget is understanding the way in which the Government have treated the elderly generally. It is obviously true that the Government got a majority at the last election and that as a consequence they are entitled to take a view on how to direct the economy. We may agree or disagree about broad strategic decisions, but underneath that broad umbrella strategy there is room for manoeuvre so that shifts in direction can be made that are not of significant strategic importance.
If that analysis is right, and if the Chancellor did have latitude lower down the ladder in terms of the amount of money devoted to various interest groups and parts of the economy, the way in which the Government have treated the elderly in the Budget is indefensible.
I have great difficulty explaining to the elderly who come to my constituency surgeries week in and week out what their position is under this Government. Indeed, if my random sample of surgery cases is anything to go by, some of them voted for the Conservative Government for the last time at the election.
The elderly see the vicious way in which housing benefit cuts have affected them and, quite reasonably, contrast that with the changes in investment income surcharge. They cannot understand why the poorly-paid elderly, perhaps with a small occupational pension, are

getting clobbered because of their thrift. I understood that the Conservative party was in favour of encouraging thrift, but the way in which the Government are going about things belies that.
The Chancellor's action on age allowances, in contradistinction to the indexation of personal allowances, is reprehensible and indefensible—

Mr. Forman: No doubt inadvertently, the hon. Gentleman has just made the same mistake as the hon. Member for Stoke-on-Trent., Central (Mr. Fisher). It is important to place on record the fact that the main basic tax thresholds were indexed by 7·5 per cent. ahead of inflation and that the age allowance was kept in line with inflation.

Mr. Kirkwood: The hon. Member for Carshalton and Wallington (Mr. Forman) is right to draw my attention to that point, and I apologise for making the same mistake as the hon. Member for Stoke-on-Trent, Central (Mr. Fisher). However, the difference in the increase between general personal relief and the age allowance is what we are discussing, and the discrepancy is indefensible.
6.45 pm
The amendments are laudable as far as they go. To demonstrate the strength of feeling that I have expressed, Liberal Members will support amendment No. 29. Although we subscribe to the views expressed by the hon. Member for Birmingham, Perry Barr (Mr. Rooker), left to our own devices and given £130 million, we would move in the direction of child benefit. Based on arithmetic that I have done in the last few minutes, it occurs to me that the Government could have increased child benefit.
I accept that we do not yet know what the increase in child benefit will be—that will not be announced until the retail price index figures for May and June are known—but, given existing rates, it would be possible to increase child benefit by a further 15p a week. In the context of the most cost-efficient way of giving help to those who need it most, that is the way in which we would spend the money that will be required if the amendment is carried.
Although we Liberals support the Labour party's attempt to introduce these changes, we shall reiterate at every conceivable opportunity that the Treasury Bench should accept the argument that child benefit—

The Temporary Chairman (Mr. John Hunt): Order. At this stage we cannot have a debate on child benefit.

Mr. Kirkwood: I stand corrected, Mr. Hunt. I simply conclude by saying that we will support the Opposition amendment, but I hope that the Treasury Bench will in the following weeks and months accept the points that I have raised in the context of the amendment.

Mr. Stuart Bell: I am grateful for the opportunity to follow the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood). Like the hon. Gentleman, I listened with interest to the contribution of the hon. Member for Brighton, Kemptown (Mr. Bowden) whose eloquence on behalf of our senior citizens I cannot match.
On Friday I attended a rally of senior citizens in Middlesbrough, and the following day attended another in Stockton in Cleveland. I can testify that there is great resentment among our senior citizens who, as the hon.
Member for Kemptown pointed out, served their country during the war and are now under pressure in their later years.
The Finance Bill has come too late for our senior citizens, which is why the amendment seeks to help them. Those people are concerned about the pressure under which they have been put by the Government. In his notable contribution, my hon. Friend the Member for Workington (Mr. Campbell-Savours) referred to the fact that in 1980 the link between pension increases and inflation or earnings was severed. Now there is a discrimination against the senior citizen in the context of age allowance.
The age allowance is the tax-free allowance for pensioners and other income for the over-65s. It is the same for men and women and is included in the indexation formulae for tax thresholds. Not surprisingly, the Budget deals with finance rather than people. Had it dealt with people, I believe that the age allowance would have been increased by about 12·5 per cent. in line with the increase in personal allowances. In fact, the Treasury saves £130 million by not increasing the age allowance by 12·5 per cent., and an extra 200,000 men and women over 65 will pay income tax in 1984–85 compared with the number who would have done so had the age allowance been increased by that amount. That is another example of the way in which the Government are raising money but not giving it away.
About 40 per cent. of elderly households pay income tax. The poorest of those, with just a small slice of occupational pensions, are the hardest hit by the Chancellor's policy, just as they are by the housing benefit cuts. However, I shall not make the same deviation as the hon. Member for Roxburgh and Berwickshire and get involved in that argument now.
The rich over-65s, with £80,000 or more capital and with an unearned income of more than £7,100 a year—£140 a week — have received a tax handout in the Budget through the abolition of the investment income surcharge. It is a giveaway of £360 million to 270,000 people, some 150,000 of whom are rich and over 65.
Debates in Committee are intended not to score political points, but to persuade the Minister. I hope that the speeches that he has heard tonight will persuade him to accept the amendment.

Mr. Austin Mitchell: It is appropriate to draw attention to what the Government are not doing for the elderly. However, I shall do so briefly to expedite the debate. The Budget cheats the over-65s, and that should be publicly condemned.
A Finance Bill does two things: it is a touch of the tiller on economic management and it is a statement of the Government's social priorities. The Bill is inadequate on both counts. It is inadequate as a touch of the tiller on economic management because it does so little about the economic problems. It is inadequate as a statement of the Government's social priorities because of the way in which it cheats the elderly. I admit that it does not cheat every elderly person because 150,000 over-65s will benefit substantially from the Budget. They will feel the benefit of the changes in the unearned income rules.
Anyone with an unearned income of more than £7,100 a year—£140 a week—will benefit from the changes.
However, the remaining over-65s will be cheated because the age allowance, which is designed to help them to help themselves—and also as a statement of Government priority accorded to those who have worked all their lives to build up our community—is increased by only 5·3 per cent. Admittedly, that is the rate of inflation, but it is wholly inadequate when compared with the increase of 12·5 per cent. in allowances for other groups.
The amendment would increase the age allowance by the same rate as other allowances. It would make the allowance for a married couple £4,225 rather than the proposed £3,955, and the allowance for a single person £2,660 rather than the proposed £2,490. We owe our elderly citizens no less than that. The Government's treatment of them has been inadequate. The pension increases have been niggardly. At a time of high inflation triggered by the Conservative Government between 1979 and 1981, the Government failed to update the pension increases more than once a year, even though it was possible to update them every six months.
The Government have shifted the basis of assessment for inflation from a prediction basis to that of past inflation, pegging it to a low rate. The Prime Minister has tried to appeal to the elderly by stressing Victorian values, and using that as a facade to filch money from pensioners through a failure adequately to increase the pension and age allowances to the same extent as increases in other allowances. It is essential that the elderly are treated in the same fashion as others and not left with a lingering sense of resentment because they have been short-changed.
An increase of 12·5 per cent. would take many elderly people out of the tax net. Some 40 per cent. of elderly households pay income tax, which is a sad reflection on our society. The poorest of them, with only a small occupational pension, find that, even with the age allowance, it is sufficient to take them into the Chancellor's net.
We have all come across pensioners in our constituency surgeries who cannot understand why, with a small occupational pension, they must pay tax. Why, after all the Government have said about their intentions for the elderly, are they still paying tax? The Government have shown that they have the money available in what they have done for unearned income—a giveaway of £360 million to a small, select section of our society of 270,000 people. Our amendment would cost less than half of that sum. The Treasury saves £130 million by not increasing the age allowance by the same amount as other allowances. We believe that more of the elderly should be taken out of the tax net. The Government should show the same sense of social policies felt so strongly by the Labour party, which never forgets the elderly. That cannot be said about the Conservative party. We should show our priorities by agreeing to the amendment.

The Minister of State, Treasury (Mr. Barney Hayhoe): I shall follow the example of every other hon. Member by referring to my hon. Friend the Member for Brighton, Kemptown (Mr. Bowden). He is chairman of the all-party pensions group in the House, and I know that his work is widely respected in all parts of the House and outside.
I agree not with everything that he said, but certainly with one important point. He was the only speaker to refer to inflation. He rightly pointed out the corrosive damage done by inflation, which is especially evil and damaging


to the pensioners — those with small occupational pensions or savings. They suffer most through high inflation. It was right for my hon. Friend to mention that point and to make it clear that he wholly approved of the Government's actions that have led to such a significant reduction in the rate of inflation—which in turn brings benefit to the pensioner and retired people.
Amendments Nos. 29 and 33 would increase the age allowance for the over-65s by £270 for a married couple and £170 for a single person. As has been said many times in the debate, the full-year cost of the two amendments would be £115 million. If the same indexation is applied to the income limit associated with the age allowance, that would bring the cost of the whole grouping to £130 million. Amendments Nos. 30 and 32 would cost £55 million, with an additional £5 million for the income limit.
The hon. Member for Birmingham, Perry Barr (Mr. Rooker) said that the Government had discriminated against the pensioner. That is a strange way to describe the action of the Government in indexing all the allowances by the amount required to meet the inflation and legislative conditions with which the hon. Gentleman's name is always linked.
All allowances were indexed and there was positive discrimination in favour of the basic allowance, which was topped up by 7 per cent. That was not discrimination against pensioners; it was discrimination in favour of the basic taxpayer.

Mr. Rooker: It is the same thing.

7 pm

Mr. Hayhoe: It is not. That intervention demonstrates the attitude of Opposition Members. I reject any suggestion that elderly taxpayers have been badly treated by the Chancellor in the Budget. The age allowance has been fully indexed, so there is no question of penalties. The age allowance remains significantly higher than the basic allowances. It is £800 higher for married couples and £485 higher for single people. Translating that into tax, it is a little under £5 a week for married couples and something under £3 for single people. That is the benefit for those who can take full advantage of the age allowance.
Since the 1979 general election, there have been record increases in the age allowance, plus £1,880 for married couples and £1,190 for single people. It is standing logic on its head, therefore, to say that those increases having been made—when the individuals concerned are paying less tax because their allowances have been increased to take full account of inflation — people have been penalised. As my hon. Friend the Member for Carshalton and Wallington (Mr. Forman) acknowledged, the Chancellor in his Budget clearly decided to give priority this year to increasing the basic allowances for taxpayers of working age.
As I say, the age allowance was fully indexed and protected against increased prices. Most elderly taxpayers will be looking at how much tax they will be paying this year compared with last year, rather than trying to see how much less they may be paying than their younger neighbours or relations. While I appreciate that Opposition Members have been making political points in favour of the amendment, their case does not accord with the way in which most pensioners will view the present situation.
It is a perverted argument to suggest that elderly taxpayers have been penalised, as the hon. Member for

Workington (Mr. Campbell-Savours) said, or cheated, as the hon. Member for Great Grimsby (Mr. Mitchell) said, because the basic tax allowance has been increased by more than indexation. It is nonsense to describe what the Chancellor has done as an attack on pensioners. Indeed, about 60 per cent. of elderly households do not pay tax, so they are unaffected by these changes. The majority of elderly households would not be affected by the amendment. What Opposition Members suggest is typical of their general approach of arguing the whole time for lower taxes and higher public expenditure. The senior citizen will not be taken in by their duplicity.
The Chancellor deliberately decided that, after indexing all the allowances, he would give priority to increasing the basic allowances for working taxpayers. It is right that we should raise the basic tax thresholds. The long-term objective of getting the thresholds back to sensible levels is highly desirable and will be widely supported by the Committee. I therefore ask my hon. Friends to support this Budget strategy by voting against the amendment.

Mr. Rooker: At the outset of the Minister's remarks I thought that, unlike his colleagues yesterday, he was taking the trouble to reply adequately to our arguments. At least I thought that he had costed our proposal, but then I realised that he had not listened to a word I had said. lie and his advisers know that we cannot be charged with duplicity. If one positively discriminates in favour of A against B, one has negatively discriminated against B.

Mr. Forman: Does the hon. Gentleman not appreciate the important distinction in these matters between a positive and a zero sum choice? Clearly what he is arguing would apply to a zero sum choice, whereas the Government have gone for a positive sum choice, by which some people are better off and others are just better off.

Mr. Rooker: That sounded clever, but I do not accept it. People over 65, given that their income is the same from year to year, will pay, if their allowances are indexed at 5·3 per cent., precisely the same in income tax this year as they paid last year. It cannot be argued, therefore, that they have enjoyed a tax cut of £2 for a married couple and £1 for a single person. They have not received a tax cut, because raising the allowance in line with inflation does not produce a tax cut, and nobody in advocating indexation has ever made that point.
A tax cut is achieved only when the allowances are raised above the rate of inflation—in other words, when they are over-indexed. Therefore, it is only the seven percentage points above inflation that constitute a tax cut. It means that the over-65s have suffered from the Prime Minister's promise to keep pensions in line with inflation. That was a promise not to increase pensions in real terms, and that is precisely what has happened with the age allowance. There has been no increase in real terms, and that has meant no tax cut.
As I said in my opening remarks, each year since 1977 the increases in the personal and age allowances have been within one percentage point of each other. No case has previously been made for having a wide divergence. Under the Conservative Government in recent times, in one year both were frozen. 1 am taking the starting point of indexation lest anyone suggests that I am making a spurious argument. In 1976–77 there was a different rate


because of what happened in the Finance Bill of that year. On that occasion the allowances proposed by the present Parliamentary Under-Secretary of State for Health and Social Security got on to the statute book. The hon. Gentleman did not get the credit for that, but that is another story. From that starting point—from the time when the House accepted indexation—those two allowances have always been the same, and the only occasion when there was a minor difference occurred because of a rounding-up exercise to enable the Inland Revenue to do its job.
I pay tribute, as others have done, to the hon. Member for Brighton, Kemptown (Mr. Bowden), but I shall not elaborate on that because to do so might damage his prospects in the Conservative party. But in all our debates—VAT on food and buildings and on changes that will affect 2·5 million pensioners who are being short-changed—not one member of the Social Democratic party has been in the Chamber. I shall not refer to the alliance generally in that context, because I wish to exclude the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), who contributed to the debate. I single out the Social Democratic party for not being interested in this important issue.
Three Conservative Members have contributed to the debate, but the only Member who has spoken in favour of the Government's proposals has been the Minister. Irrespective of the nuances in the speech of the hon. Member for Carshalton and Wallington (Mr. Forman), he was advancing the same argument as I was but in somewhat more polite language to the Government Front Bench. The Minister is the only Member who has supported the Government's view.
The Opposition believe that the Government are being unfair and unjust to pensioners. I have made clear how the Government could have found the money to implement the Opposition's policy. This is not a public expenditure argument. The Chancellor of the Exchequer could have doubled personal allowances for 20 million taxpayers, and the other 1·5 per cent. could have been used to assist the 2·4 million pensioners who have been short-changed. Only 1·5p in the pound would be required from the allowances of others.
The fact that allowances are to be doubled is commendable, but I do not understand why the Government fail to recognise our argument. During the assembly of the Budget, it seems unlikely that Treasury Ministers ever considered with their advisers—they are all well heeled — the consequences of the proposal before us. I do not believe that they were considered, and I regret deeply that the Government have not taken the opportunity of second thought that the amendment has given them to eradicate the injustice to which we have drawn attention. Accordingly, I ask my right hon. and hon. Friends and other hon. Members to support the amendment in a Division.

Question put, That the amendment be made:—

The Committee divided: Ayes 130, Noes 217.

Division No. 263]
[7.10 pm


AYES


Adams, Allen (Paisley N)
Banks, Tony (Newham NW)


Anderson, Donald
Barnett, Guy


Archer, Rt Hon Peter
Barron, Kevin


Ashley, Rt Hon Jack
Beckett, Mrs Margaret


Atkinson, N. (Tottenham)
Bell, Stuart



Bennett, A. (Dent'n &amp; Red'sh)
Kinnock, Rt Hon Neil


Bidwell, Sydney
Kirkwood, Archibald


Blair, Anthony
Lamond, James


Bowden, A. (Brighton K'to'n)
Leadbitter, Ted


Boyes, Roland
Leighton, Ronald


Bray, Dr Jeremy
Lewis, Ron (Carlisle)


Bruce, Malcolm
Litherland, Robert


Caborn, Richard
Lofthouse, Geoffrey


Callaghan, Rt Hon J.
Loyden, Edward


Callaghan, Jim (Heyw'd &amp; M)
McCartney, Hugh


Campbell-Savours, Dale
McDonald, Dr Oonagh


Carter-Jones, Lewis
McGuire, Michael


Clark, Dr David (S Shields)
McWilliam, John


Cocks, Rt Hon M. (Bristol S.)
Madden, Max


Cohen, Harry
Marshall, David (Shettleston)


Coleman, Donald
Meadowcroft, Michael


Cook, Frank (Stockton North)
Michie, William


Corbett, Robin
Mikardo, Ian


Cowans, Harry
Milian, Rt Hon Bruce


Cox, Thomas (Tooting)
Miller, Dr M. S. (E Kilbride)


Craigen, J. M.
Mitchell, Austin (G't Grimsby)


Crowther, Stan
Morris, Rt Hon A. (W'shawe)


Cunliffe, Lawrence
Morris, Rt Hon J. (Aberavon)


Dalyell, Tam
Oakes, Rt Hon Gordon


Davies, Ronald (Caerphilly)
O'Brien, William


Davis, Terry (B'ham, H'ge H'l)
Park, George


Dixon, Donald
Patchett, Terry


Dobson, Frank
Penhaligon, David


Dormand, Jack
Pike, Peter


Dubs, Alfred
Radice, Giles


Duffy, A. E. P.
Randall, Stuart


Dunwoody, Hon Mrs G.
Redmond, M.


Eadie, Alex
Rees, Rt Hon M. (Leeds S)


Evans, John (St. Helens N)
Richardson, Ms Jo


Ewing, Harry
Robertson, George


Fatchett, Derek
Robinson, G. (Coventry NW)


Faulds, Andrew
Rooker, J. W.


Field, Frank (Birkenhead)
Sedgemore, Brian


Fisher, Mark
Sheldon, Rt Hon R.


Flannery, Martin
Short, Mrs R.(W'hampt'n NE)


Foster, Derek
Silkin, Rt Hon J.


Fraser, J. (Norwood)
Skinner, Dennis


Freeson, Rt Hon Reginald
Smith, C.(lsl'ton S &amp; F'bury)


Garrett, W. E.
Snape, Peter


George, Bruce
Steel, Rt Hon David


Gould, Bryan
Stewart, Rt Hon D. (W Isles)


Gourlay, Harry
Stott, Roger


Hamilton, W. W. (Central Fife)
Thomas, Dr R. (Carmarthen)


Hardy, Peter
Tinn, James


Hart, Rt Hon Dame Judith
Wainwright, R.


Hattersley, Rt Hon Roy
Wardell, Gareth (Gower)


Haynes, Frank
Weetch, Ken


Hogg, N. (C'nauld &amp; Kilsyth)
Welsh, Michael


Holland, Stuart (Vauxhall)
Wigley, Dafydd


Howells, Geraint
Wilson, Gordon


Hughes, Dr. Mark (Durham)
Woodall, Alec


Hughes, Robert (Aberdeen N)
Wrigglesworth, Ian


Hughes, Roy (Newport East)
Young, David (Bolton SE)


Hughes, Sean (Knowsley S)



Janner, Hon Greville
Tellers for the Ayes:


Kaufman, Rt Hon Gerald
Mr. James Hamilton and


Kilroy-Silk, Robert
Mr. Allen McKay.


NOES


Adley, Robert
Boscawen, Hon Robert


Aitken, Jonathan
Bowden, Gerald (Dulwich)


Alexander, Richard
Braine, Sir Bernard


Alison, Rt Hon Michael
Brandon-Bravo, Martin


Ancram, Michael
Browne, John


Arnold, Tom
Buchanan-Smith, Rt Hon A.


Ashby, David
Budgen, Nick


Atkins, Robert (South Ribble)
Butterfill, John


Baldry, Anthony
Chapman, Sydney


Batiste, Spencer
Clark, Sir W. (Croydon S)


Beaumont-Dark, Anthony
Clarke, Rt Hon K. (Rushcliffe)


Bellingham, Henry
Clegg, Sir Walter


Bennett, Sir Frederic (T'bay)
Cockeram, Eric


Benyon, William
Colvin, Michael


Berry, Sir Anthony
Conway, Derek


Biffen, Rt Hon John
Coombs, Simon






Cranborne, Viscount
McCrindle, Robert


Crouch, David
McCurley, Mrs Anna


Dorrell, Stephen
MacKay, Andrew (Berkshire)


du Cann, Rt Hon Edward
MacKay, John (Argyll &amp; Bute)


Dykes, Hugh
Maclean, David John


Emery, Sir Peter
McNair-Wilson, P. (New F'st)


Evennett, David
Major, John


Fallon, Michael
Maples, John


Favell, Anthony
Marland, Paul


Fenner, Mrs Peggy
Mather, Carol


Finsberg, Sir Geoffrey
Maude, Hon Francis


Fletcher, Alexander
Mawhinney, Dr Brian


Forman, Nigel
Maxwell-Hyslop, Robin


Forth, Eric
Mellor, David


Fox, Marcus
Merchant, Piers


Franks, Cecil
Miller, Hal (B'grove)


Fraser, Peter (Angus East)
Mills, lain (Meriden)


Freeman, Roger
Mills, Sir Peter (West Devon)


Fry, Peter
Mitchell, David (NW Hants)


Galley, Roy
Moate, Roger


Gardiner, George (Reigate)
Moore, John


Goodhart, Sir Philip
Morris, M. (N'hampton, S)


Goodlad, Alastair
Morrison, Hon C. (Devizes)


Gorst, John
Morrison, Hon P. (Chester)


Gow, Ian
Moynihan, Hon C.


Grant, Sir Anthony
Mudd, David


Greenway, Harry
Murphy, Christopher


Griffiths, Peter (Portsm'th N)
Neale, Gerrard


Ground, Patrick
Needham, Richard


Grylls, Michael
Nicholls, Patrick


Hamilton, Neil (Tatton)
Normanton, Tom


Hanley, Jeremy
Norris, Steven


Hargreaves, Kenneth
Onslow, Cranley


Harris, David
Oppenheim, Rt Hon Mrs S.


Havers, Rt Hon Sir Michael
Osborn, Sir John


Hawkins, C. (High Peak)
Ottaway, Richard


Hawkins, Sir Paul (SW N'folk)
Page, Richard (Herts SW)


Hawksley, Warren
Parris, Matthew


Hayhoe, Barney
Peacock, Mrs Elizabeth


Heathcoat-Amory, David
Pollock, Alexander


Henderson, Barry
Powell, William (Corby)


Hill, James
Powley, John


Hirst, Michael
Prentice, Rt Hon Reg


Holland, Sir Philip (Gedling)
Price, Sir David


Holt, Richard
Proctor, K. Harvey


Hooson, Tom
Pym, Rt Hon Francis


Howard, Michael
Rees, Rt Hon Peter (Dover)


Howarth, Alan (Stratf'd-on-A)
Renton, Tim


Howarth, Gerald (Cannock)
Rhodes James, Robert


Howell, Ralph (N Norfolk)
Ridsdale, Sir Julian


Hubbard-Miles, Peter
Roberts, Wyn (Conwy)


Hunt, David (Wirral)
Roe, Mrs Marion


Hunter, Andrew
Rowe, Andrew


Hurd, Rt Hon Douglas
Ryder, Richard


Jackson, Robert
Sainsbury, Hon Timothy


Jessel, Toby
Shaw, Giles (Pudsey)


Johnson-Smith, Sir Geoffrey
Shelton, William (Streatham)


Jones, Gwilym (Cardiff N)
Shepherd, Colin (Hereford)


Jones, Robert (W Herts)
Shepherd, Richard (Aldridge)


Joseph, Rt Hon Sir Keith
Shersby, Michael


Kellett-Bowman, Mrs Elaine
Silvester, Fred


Kershaw, Sir Anthony
Sims, Roger


Key, Robert
Skeet, T. H. H.


King, Roger (B'ham N'field)
Smith, Sir Dudley (Warwick)


King, Rt Hon Tom
Smith, Tim (Beaconsfield)


Knight, Gregory (Derby N)
Soames, Hon Nicholas


Knight, Mrs Jill (Edgbaston)
Spencer, Derek


Lamont, Norman
Squire, Robin


Lawler, Geoffrey
Stanbrook, Ivor


Lawrence, Ivan
Steen, Anthony


Lee, John (Pendle)
Stern, Michael


Leigh, Edward (Gainsbor'gh)
Stevens, Lewis (Nuneaton)


Lennox-Boyd, Hon Mark
Stewart, Allan (Eastwood)


Lester, Jim
Stewart, Andrew (Sherwood)


Lewis, Sir Kenneth (Stamf'd)
Stewart, Ian (N Hertf'dshire)


Lightbown, David
Stokes, John


Lilley, Peter
Stradling Thomas, J.


Lloyd, Ian (Havant)
Sumberg, David


Lord, Michael
Tapsell, Peter


Lyell, Nicholas
Taylor, John (Solihull)



Taylor, Teddy (S'end E)
Wardle, C. (Bexhill)


Temple-Morris, Peter
Wells, John (Maidstone)


Terlezki, Stefan
Wheeler, John


Thomas, Rt Hon Peter
Wiggin, Jerry


Thompson, J. (Wansbeck)
Winterton, Mrs Ann


Thurnham, Peter
Winterton, Nicholas


Townend, John (Bridlington)
Wolfson, Mark


Trotter, Neville
Wood, Timothy


van Straubenzee, Sir W.
Woodcock, Michael


Viggers, Peter
Young, Sir George (Acton)


Wakeham, Rt Hon John



Waldegrave, Hon William
Tellers for the Noes:


Walden, George
Mr. Archie Hamilton and


Waller, Gary
Mr. Ian Lang.


Ward, John

Question accordingly negatived.

Mr. Rooker: I beg to move amendment No. 34, in page 12, line 30, at end add—
'(3) In subsection (1A) of section 8 of the Taxes Act (personal reliefs: age allowance) for the words "of the age of sixty-five or upwards" wherever they appear there shall be substituted the words "of pensionable age"; and at the end of that subsection there shall be added the words 'and the expression 'pensionable age' shall bear the same meaning as in Schedule 20 to the Social Security Act 1975".'.
The thrust of the amendment is that women should receive the benefit of the age allowance at 60 rather than wait until they are 65. In the past few years, this matter has been raised several times in the House. We did not discuss this matter last year because of the curtailment of the debate on the Finance Bill before and after the general election. A debate on this subject occurred in 1981, when the Government froze personal allowances, and in 1982. I remember participating in the 1981 debate.
We are referring to women aged between 60 and 64 who receive the state retirement pension, a graduated pension, a state earnings-related scheme pension or a small occupational pension. If such women receive an income this year of just over £3 a week on top of the basic state retirement pension, they are included in the tax net. A man retiring at 65 after a lifetime of service can receive £12 a week in tax-free income or in a pension in addition to the state retirement pension before he is caught in the tax net. That comes about because of the differing retirement ages for men and women. There is, therefore, no justification for having a common age at which both sexes can obtain the benefits of the age allowance.
In 1977, during a lengthy debate on the Finance Bill, one of my right hon. Friends, a Treasury Minister, admitted after a considerable argument from Labour and Conservative Members that the age allowance was a retirement allowance. The Minister could not explain why the age limit should be 65 for men and women. No case could be made, because of the unfairness and sexual discrimination involved. He admitted in the end that he was dealing with a retirement allowance. We concluded from his remarks that the allowance should be made available at the time the retirement pension is given. It is about time that this anomaly was corrected.
The single person state retirement pension is £34.05 a week. I assume that the amount will increase in November by 5 per cent., although the figure may differ slightly. The Government will rig the May RPI, because building societies have delayed their reductions for a month. In November, the retirement pension will increase to £37.75 a week. We must consider two different pension rates, because the tax year ends in April and the social security year ends in November. The state retirement pension


between April 1984 and April 1985 for a single pensioner will be £1,852. After the passage of the Finance Bill, a woman aged between 60 and 64 will have a tax-free personal allowance of £2,005. Her spare allowance will, therefore, be £153. If she earns £3 a week in addition to receiving the state retirement pension, she will be caught in the tax net.
It is easy to see how £3 a week can be made up with graduated pension, and state earnings-related pension and, for many retired professional women, an occupational pension. Those women will receive well over £3 a week extra and will fall straight into the tax net. A retired man of 65 has the same state retirement pension of £1,852. His personal allowance is not £2,005; it is £2,490. He has a spare £638. Therefore, a man can have an occupational pension or other income—it could even be for a part-time job — of £12 a week free of tax. That discrimination in retirement is unfair. When the woman is 65 she benefits from the age allowance. We want the matter put right.
7.30 pm
No Labour Member has been able to say until this debate that this point was mentioned in our manifesto last summer. One assumes that the Government may make some changes to the tax structure to iron out some anomalies and make it fairer for many people, but if it remains the same the Labour party is pledged to ensure that the age allowance operates at retirement age. It was a clear and unequivocal manifesto commitment, and because we are in opposition it does not mean that we renege on that commitment—as the Prime Minister did on rates, when she promised to abolish them, lost the 1974 election and then said that the promise did not matter any more.
We want the Minister to tell us how much the change would cost this year and where he will get the money, and then say to all women, "Yes, the Government believe in fairness in the tax system and equality between the sexes." He should accept our amendment.

Ms. Jo Richardson: My hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) will correct me if I am wrong when I say that this is the first time during the passage of a Finance Bill that we have been able to have this type of debate in Committee on the Floor of the Chamber rather than upstairs. He said that the point had been raised before, but it is important that we should get it across as publicly as possible.
Women pensioners have to pay tax on their occupational pension when it is combined with their state pension, and they have to wait until they are 65 before they benefit from the age allowance. That is a horrible inequality which we must get rid of. I suspect that it is an anomaly or that it may not have been discussed sufficiently when it was introduced, but we must discuss it in a meaningful way and put it right.
I echo what my hon. Friend said. We should like to hear from the Minister what the change would cost. I guess that it would be peanuts in terms of the Finance Bill.
In a previous debate several hon. Members expressed the views of their constituents and others about pension levels. I believe that it was only the Minister who could not understand the sense of outrage that they felt. There is no other word for what pensioners feel about the way in which they have been treated by the Government. Every

time I go to a pensioners' meeting, rally or club, people bombard me with questions as to why pensioners are being disadvantaged. More women than ever say to me, "Why am I disadvantaged in terms of my pension in comparison with my male counterparts?" I am sure that members of all parties have had many such cases and have had to try to explain away the matter. They usually say that, when the pension for men and women is at the same level, the anomaly will disappear. However, the Government have made no move towards equalising the pension at age 60. It is something that I suggested last December should be included in the Sex Equality Bill, but it was voted down. We must, therefore, try to handle it in this way.
There is a growing number of women pensioners. One has only to go—as I am sure all hon. Members do frequently — to lunch and leisure centres, old-age pensioners' clubs and afternoon and evening clubs to see the disproportionate number of women of pension age compared with men. The view that we are expressing today on behalf of those women will grow in the future because that body of women will not tolerate the discrimination that has been heaped upon them so far.
I have never understood why the single pensioner is thought to be able to exist on virtually half of what a married couple can. A woman pensioner, whether unmarried and working or married with some occupational pension, is forced to pay tax on the aggregated pension that she receives from her work and the state. It is outrageous that women should be treated in that way.
I have a friend, a constituent, whom I visit regularly. She is in precisely that position. She is not married. Until she retired she was a Post Office employee, and she has a small pension from that job. When her two pensions are aggregated she has to pay tax, yet she has to support a home, albeit lived in only by herself. She has a small, onebedroomed council flat. She has frequently said to me, "Why should it always be assumed that because I am living on my own I can live on much less than a married couple?" Many of the things that single people have to buy for the household must be bought by the married couple or the family—toilet rolls, washing-up liquid, sheets, furniture and so on. I appreciate that that extends beyond the group of people about whom I am talking. It is difficult for women who have worked hard, managed to gain a small occupational pension and reached state pensionable age, to maintain the dignity of their existence, because they are taxed unfairly.
I am sure that the Minister will say, "We cannot do it this time—we will do it another time—but we are bent on creating equal pension conditions for men and women." It is about time that he put his money where his mouth is. This would be a good point for him to start.
As my hon. Friend the Member for Perry Barr said, this was a Labour party manifesto commitment at the general election. It was the first time that we put it in, but we stick by that commitment. We also want to bring down the pension age. I hope that the House will think seriously about removing the age allowance anomaly. It would make a tremendous difference to hundreds of thousands of women who have worked hard for their pension, gained a state pension, and now see most of it flyng out of the window into the Treasury's coffers. They resent that very much. They want to be treated on an equal basis with men. It is monstrous that men in a similar situation have to pay much less tax. I hope that the Government will think seriously about this matter. The Labour party is trying to


widen its thinking about equality and discrimination against women. This would be a good way for the Government to show their attitude. I hope that the Minister will accept the amendment.

Mr. Hayhoe: The present rule is that the age allowance goes to single people aged 65 or over and to married couples where either spouse is aged 65 or over. The amendment would tie the age allowance to the relevant pensionable age for national insurance retirement pension purposes, that is, 65 for men and 60 for women. The result of the amendment would be that the age allowance would be extended to single women and widows aged 60 to 64, which would cost approximately £30 million, and also to married couples where the wife is aged 60 to 64 and the husband is aged under 65. I am not sure whether that was the intention behind the amendment but that change would cost over £50 million. Therefore, the global cost of the amendment would be £85 million.
The hon. Member for Birmingham, Perry Barr (Mr. Rooker) was calling for the qualifying age for age allowance to be aligned on principle with the retirement age for national insurance retirement pension purposes. This Government, like all previous Governments who have considered the matter, believe that would be unjustified in principle and unfair in practice. In any case, aligning the qualification for age allowance with the national insurance pensionable age would not correspond with the actual age of retirement because many taxpayers of either sex retire well before or well after their respective pensionable ages.
To give two examples, the amendment would extend the age allowance to single women aged 60 to 64 who were still working full time, and to married couples where the wife had reached 60 but the husband was under 65, even though both spouses were still working and even though the wife might have no national insurance retirement pension entitlement on her own contributions. All I am trying to demonstrate is that there are anomalies in the way the amendment would work. The amendment would not extend the age allowance to single men aged 60 to 64 who had retired, as many do, or to widows aged 50 to 59 who might get the same pension as the single woman or widow aged 60 to 64 and who might not be working.
I hope that I am not doing this in a destructive way, but all I am trying to indicate is that an amendment along the lines proposed by the hon. Member would result in many anomalies and unfairnesses. One would need to go over the whole matter with great care but it is arguable that there would be more anomalies than under the present rules. I accept, as the hon. Member made clear, that the present rules have anomalies and unfairnesses. I understand that many women see the rules in that light. Some women may be obliged to retire at 60—this may have happened in the case referred to by the hon. Member for Barking (Ms. Richardson). They may retire unwillingly. This happens in the public service and in industry and commerce. They may feel that it is unfair that they have to wait for their age allowance while men who retire at age 65 get the allowance immediately.
Most people agree that there are anomalies but I think it is accepted that the anomaly here, if there is one, lies in the pension rules which provide different pensionable ages for men and women rather than in the tax rules, which are even-handed in regard to age. The immediate effect of the amendment would be to introduce a new element of

sex discrimination into the tax system and to add to the existing discrimination which many men understandably see as operating against them in regard to pensions.
Although I am advised that the words of the amendment are defective, as I find quite often in finance debates a is not on those grounds that the Government cannot accept the propositions contained in the amendment. I hope, therefore, that it will be withdrawn; otherwise I hope the Committee will reject it.
7.45 pm

Mr. Rooker: Will the Minister tell us what the purpose of the age allowance is? When he does that, I can make other points about his earlier remarks about anomalies.

Mr. Hayhoe: I am not sure that it would be wise for me to go into a wide debate at this stage as to the purpose of the age allowance, although the hon. Member tempts me. We seem to be getting into philosophic considerations. What I have tried to indicate to the hon. Member — I recognise that he was putting forward the amendment with a view to increasing the fairness of the system and to eliminating anomalies — is that the amendment, apart from being technically defective, would create anomalies and unfairnesses. This matter requires further consideration. As the hon. Member may know, I am a member of the inquiry into retirement pensions which is being conducted by my right hon. Friend the Secretary of State for Social Services. I am sure that this matter, among many others, will be taken into consideration in our deliberations.

Mr. Rooker: When the Minister is considering the evidence given to that inquiry, I hope he will look up the purpose of the age allowance. He clearly does not know. If he did, he would have told us. The Minister could have spelt out the reasons why it is appropriate for both men and women to get the age allowance at 65. The Treasury must have a view. All the expensive advisers in the Treasury should know why women have to wait until 65 to gel the benefit of the age allowance. The Minister has said that it would be unfair to accept the amendment because it would create more anomalies if some women went on working after the age of 60. What about all the Members of Parliament who go on working after 65? They all get the benefit of the age allowance. What is the difference? No one is advocating compulsory retirement. Nobody is advocating a different retirement age because that would be out of order in this debate.
All we are arguing for is equity and justice within the present system which is unfair to women. Some people do not have a free choice about when they retire. Some companies require employees to retire before the statutory retirement age at which they can get the state retirement pension. We are not arguing for changes in regard to that. A man who retires at 62 or 63, either voluntarily or because he is forced by his company to retire, knows that he will not get the age allowance until he is 65. That is not an anomaly that would be created by accepting the amendment. No anomaly would be created if a woman finished full-time work at 58 or 59. The anomaly lies in the unfairness of having two different qualifying ages for retirement pension and one qualifying age for the age allowance. That happens coincidentally to be the age that suits men and not women. That is the anomaly. The Chamber has been full of men over the years, as has the


Treasury. Until there are changes in that position the anomalies will continue. I may add that I am not offering my seat to any woman. Nobody thinks about that in the Treasury. Nobody applies his mind to sex discrimination. If he did someone in the Department would have given the Minister a short paragraph explaining the purpose of the age allowance. Nobody thought about that. The Minister has drawn the short straw again today. I am sorry about that because he is a nice person, but he is a Tory Minister and we shall vote for the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 131, Noes 204.

Division No. 263]
[7.50 pm


AYES


Adams, Allen (Paisley N)
Hart, Rt Hon Dame Judith


Anderson, Donald
Hattersley, Rt Hon Roy


Archer, Rt Hon Peter
Haynes, Frank


Ashley, Rt Hon Jack
Hogg, N. (C'nauld &amp; Kilsyth)


Atkinson, N. (Tottenham)
Holland, Stuart (Vauxhall)


Bagier, Gordon A. T.
Howells, Geraint


Banks, Tony (Newham NW)
Hughes, Dr. Mark (Durham)


Barron, Kevin
Hughes, Robert (Aberdeen N)


Beckett, Mrs Margaret
Hughes, Roy (Newport East)


Bell, Stuart
Hughes, Sean (Knowsley S)


Benn, Tony
Janner, Hon Greville


Bennett, A. (Dent'n &amp; Red'sh)
Kaufman, Rt Hon Gerald


Bidwell, Sydney
Kilroy-Silk, Robert


Blair, Anthony
Kirkwood, Archibald


Boyes, Roland
Lamond, James


Bray, Dr Jeremy
Leadbitter, Ted


Brown, R. (N'c'tle-u-Tyne N)
Leighton, Ronald


Bruce, Malcolm
Lewis, Ron (Carlisle)


Caborn, Richard
Litherland, Robert


Callaghan, Jim (Heyw'd &amp; M)
Lofthouse, Geoffrey


Campbell-Savours, Dale
Loyden, Edward


Carter-Jones, Lewis
McCartney, Hugh


Clark, Dr David (S Shields)
McCusker, Harold


Cocks, Rt Hon M. (Bristol S.)
McDonald, Dr Oonagh


Cohen, Harry
McGuire, Michael


Coleman, Donald
McKay, Allen (Penistone)


Conlan, Bernard
McNamara, Kevin


Cook, Frank (Stockton North)
McWilliam, John


Corbett, Robin
Madden, Max


Cowans, Harry
Maginnis, Ken


Cox, Thomas (Tooting)
Marshall, David (Shettleston)


Craigen, J. M.
Meadowcroft, Michael


Crowther, Stan
Michie, William


Dalyell, Tam
Mikardo, Ian


Davies, Ronald (Caerphilly)
Milian, Rt Hon Bruce


Davis, Terry (B'ham, H'ge H'I)
Miller, Dr M. S. (E Kilbride)


Dixon, Donald
Morris, Rt Hon A. (W'shawe)


Dobson, Frank
Morris, Rt Hon J. (Aberavon)


Dormand, Jack
Nicholson, J.


Duffy, A. E. P.
O'Brien, William


Dunwoody, Hon Mrs G.
Park, George


Eadie, Alex
Patchett, Terry


Evans, John (St. Helens N)
Penhaligon, David


Ewing, Harry
Pike, Peter


Fatchett, Derek
Radice, Giles


Faulds, Andrew
Randall, Stuart


Field, Frank (Birkenhead)
Redmond, M.


Fisher, Mark
Rees, Rt Hon M. (Leeds S)


Flannery, Martin
Richardson, Ms Jo


Forsythe, Clifford (S Antrim)
Roberts, Ernest (Hackney N)


Foster, Derek
Robinson, G. (Coventry NW)


Fraser, J. (Norwood)
Rooker, J. W.


Freeson, Rt Hon Reginald
Sheldon, Rt Hon R.


Garrett, W. E.
Short, Mrs R.(W'hampt'n NE)


George, Bruce
Silkin, Rt Hon J.


Godman, Dr Norman
Skinner, Dennis


Gould, Bryan
Smith, C.(Isl'ton S &amp; F'bury)


Hamilton, James (M'well N)
Stewart, Rt Hon D. (W Isles)


Hamilton, W. W. (Central Fife)
Stott, Roger


Hardy, Peter
Strang, Gavin



Thomas, Dr R. (Carmarthen)
Woodall, Alec


Tinn, James
Wrigglesworth, Ian


Wainwright, R.
Young, David (Bolton SE)


Wardell, Gareth (Gower)



Weetch, Ken
Tellers for the Ayes:


Welsh, Michael
Mr. Lawrence Cunliffe and


Wigley, Dafydd
Mr. Austin Mitchell.


Wilson, Gordon



NOES


Aitken, Jonathan
Holland, Sir Philip (Gedling)


Ancram, Michael
Holt, Richard


Arnold, Tom
Hooson, Tom


Ashby, David
Howard, Michael


Atkins, Robert (South Ribble)
Howarth, Alan (Stratf'd-on-A)


Baldry, Anthony
Howarth, Gerald (Cannock)


Batiste, Spencer
Howell, Ralph (N Norfolk)


Beaumont-Dark, Anthony
Hubbard-Miles, Peter


Bellingham, Henry
Hunt, David (Wirral)


Benyon, William
Hunter, Andrew


Berry, Sir Anthony
Jessel, Toby


Biffen, Rt Hon John
Jones, Gwilym (Cardiff N)


Boscawen, Hon Robert
Jones, Robert (W Herts)


Bowden, Gerald (Dulwich)
Joseph, Rt Hon Sir Keith


Braine, Sir Bernard
Kellett-Bowman, Mrs Elaine


Brandon-Bravo, Martin
Kershaw, Sir Anthony


Browne, John
Key, Robert


Budgen, Nick
King, Roger (B'ham N'field)


Butterfill, John
King, Rt Hon Tom


Chapman, Sydney
Knight, Gregory (Derby N)


Clark, Dr Michael (Rochford)
Lamont, Norman


Clark, Sir W. (Croydon S)
Lang, Ian


Clegg, Sir Walter
Lawler, Geoffrey


Cockeram, Eric
Lee, John (Pendle)


Colvin, Michael
Leigh, Edward (Gainsbor'gh)


Conway, Derek
Lennox-Boyd, Hon Mark


Coombs, Simon
Lester, Jim


Cranborne, Viscount
Lewis, Sir Kenneth (Stamf'd)


Crouch, David
Lightbown, David


Dorrell, Stephen
Lilley, Peter


du Cann, Rt Hon Edward
Lloyd, Ian (Havant)


Dykes, Hugh
Lord, Michael


Emery, Sir Peter
McCrindle, Robert


Evennett, David
McCurley, Mrs Anna


Favell, Anthony
MacKay, Andrew (Berkshire)


Fenner, Mrs Peggy
MacKay, John (Argyll &amp; Bute)


Finsberg, Sir Geoffrey
Maclean, David John


Fletcher, Alexander
McNair-Wilson, P. (New F'st)


Forman, Nigel
Major, John


Forth, Eric
Maples, John


Fox, Marcus
Marland, Paul


Franks, Cecil
Mather, Carol


Fraser, Peter (Angus East)
Maude, Hon Francis


Freeman, Roger
Mawhinney, Dr Brian


Fry, Peter
Maxwell-Hyslop, Robin


Galley, Roy
Merchant, Piers


Gardiner, George (Reigate)
Mills, lain (Meriden)


Goodhart, Sir Philip
Mills, Sir Peter (West Devon)


Goodlad, Alastair
Miscampbell, Norman


Gorst, John
Moate, Roger


Grant, Sir Anthony
Moore, John


Greenway, Harry
Morris, M. (N'hampton, S)


Gregory, Conal
Morrison, Hon C. (Devizes)


Griffiths, E. (By St Edm'ds)
Morrison, Hon P. (Chester)


Griffiths, Peter (Portsm'th N)
Moynihan, Hon C.


Ground, Patrick
Mudd, David


Grylls, Michael
Murphy, Christopher


Hamilton, Neil (Tatton)
Neale, Gerrard


Hanley, Jeremy
Needham, Richard


Hargreaves, Kenneth
Nicholls, Patrick


Harris, David
Normanton, Tom


Havers, Rt Hon Sir Michael
Norris, Steven


Hawkins, C. (High Peak)
Oppenheim, Rt Hon Mrs S.


Hawksley, Warren
Osborn, Sir John


Hayes, J.
Ottaway, Richard


Hayhoe, Barney
Page, Richard (Herts SW)


Heathcoat-Amory, David
Parris, Matthew


Henderson, Barry
Pawsey, James


Hill, James
Peacock, Mrs Elizabeth


Hirst, Michael
Percival, Rt Hon Sir Ian






Pollock, Alexander
Stewart, Ian (N Hertf'dshire)


Prentice, Rt Hon Reg
Stokes, John


Price, Sir David
Stradling Thomas, J.


Proctor, K. Harvey
Sumberg, David


Pym, Rt Hon Francis
Tapsell, Peter


Rees, Rt Hon Peter (Dover)
Taylor, John (Solihull)


Rhodes James, Robert
Taylor, Teddy (S'end E)


Rhys Williams, Sir Brandon
Temple-Morris, Peter


Ridsdale, Sir Julian
Terlezki, Stefan


Roberts, Wyn (Conwy)
Thomas, Rt Hon Peter


Roe, Mrs Marion
Thompson, Donald (Calder V)


Rowe, Andrew
Thurnham, Peter


Ryder, Richard
Townend, John (Bridlington)


Sackville, Hon Thomas
Trotter, Neville


Sainsbury, Hon Timothy
van Straubenzee, Sir W.


Shaw. Giles (Pudsey)
Vaughan, Sir Gerard


Shelton, William (Streatham)
Viggers, Peter


Shepherd, Colin (Hereford)
Wakeham, Rt Hon John


Shepherd, Richard (Aldridge)
Waldegrave, Hon William


Silvester, Fred
Waller, Gary


Sims, Roger
Ward, John


Skeet, T. H. H.
Wardle, C. (Bexhill)


Smith, Sir Dudley (Warwick)
Wells, John (Maidstone)


Smith, Tim (Beaconsfield)
Wheeler, John


Soames, Hon Nicholas
Winterton, Mrs Ann


Spencer, Derek
Winterton, Nicholas


Squire, Robin
Wolfson, Mark


Stanbrook, Ivor
Wood, Timothy


Steen, Anthony
Woodcock, Michael


Stern. Michael
Young, Sir George (Acton)


Stevens, Lewis (Nuneaton)



Stevens, Martin (Fulham)
Tellers for the Noes:


Stewart, Allan (Eastwood)
Mr. Archie Hamilton and


Stewart, Andrew (Sherwood)
Mr. Douglas Hogg.

Question accordingly negatived.

Clause 21

PERSONAL RELIEFS

Question proposed, That the clause stand part of the Bill.

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Mr. John Maples: I shall consider the underlying reasons for raising tax thresholds because the amendments debated so far have focused narrowly on the age allowance and not on the reasons for the measure.
The theory outlined by my right hon. Friend the Chancellor in his Budget statement was that by raising tax thresholds he would be able to alleviate the poverty and unemployment traps. Few people, however, will be taken out of the poverty trap by the measure. The answer given to a recent parliamentary question was that, of the 850,000 people who would be taken out of tax by raising the thresholds, only about 100,000 would have children and therefore be in the poverty trap and, possibly, the unemployment trap. According to a recent Institute of Fiscal Studies report, the others are mainly pensioners, married women earning a second income and young single people. Only 8 or 9 per cent. of those who are helped by over-indexing tax thresholds are in the poverty trap. It is an expensive way of taking people out of the poverty trap. As it applies to everybody, it is of greater help to those on higher incomes than to those on lower incomes. It is a massively expensive method of alleviating the impact of the poverty trap, because it requires an enormous rise in tax thresholds.
At present the tax threshold starts at about 35 per cent. of average earnings. Thirty years ago it was 83 per cent. of average earnings. If we seek to cure the poverty trap by

raising tax thresholds, we shall have to raise them to 50 or 55 per cent. of average earnings. That is why it is so expensive.
The impact of taxation is only part of the poverty trap. The greater part is the rate at which benefits are withdrawn. That applies to the unemployment trap and the trap which faces pensioners who receive an increase in occupational pensions, because that results in a decrease in housing benefit. They may find themselves paying an effective rate of tax of over 100 per cent.
The extent to which income tax is a factor in those poverty traps depends more on the high rate at which tax starts to bite than the threshold. In effect, people pay a 39 per cent. tax rate, of which 30 per cent. is tax arid 9 per cent. national insurance contribution. If the rate were reduced to 19 per cent. — 10 per cent. tax and 9 per cent. national insurance contribution—it would have a far greater impact on alleviating the poverty trap.
That could be done by lowering, not raising, tax thresholds. By lowering thresholds one can reduce dramatically the rate of tax. Most problems associated with the United Kingdom tax system are the result of the enormous number of exemptions, including personal allowances, which result in more than half of personal income not being taxed. Consequently we have high rates of tax.
One of the most interesting tax statistics is that total income tax revenue as a percentage of total personal income is only about 12·5 per cent. That has been true under both Labour and Conservative Governments since 1955, and probably before. It has varied between 11·5 per cent. and 13·5 per cent. A flat rate tax of 12·5 per cent. —I do not suggest that this can be done, because it would be massively regressive—would raise as much revenue. The average taxpayer in Britain would be amazed if he were told that.
Instead, our system has a low average rate of about 12·5 per cent., but high marginal rates. That is exactly the opposite to what an efficient tax system should be and is caused by the many deductions that are permitted. The major deductions are personal allowances, pensions and mortgages, for all of which there are extremely good reasons. Nevertheless, they cause the high marginal rates of tax which impact the poverty trap. Privileged saving, tax anomalies in saving, the tendency to pay people through fringe benefits rather than in cash, the effect on pay bargaining of employers having to pay a lot of money to give a relatively small net pay increase arise from the massive exemptions and the resulting necessity for higher rates.
I did some simple calculations that showed that if one adopted such a broad brush approach—which would obviously have to be tempered to cope with various problems—a basic rate of tax of 10 per cent. levied up to average earnings, of 20 per cent. to twice average earnings and of 25 per cent. thereafter would yield more revenue than the present income tax system.
There would be problems—now is not the time to consider them — regarding people with mortgages, working wives and the very low paid, for whom special provisions would have to be made, and the pensions system. However, those problems are soluble. If one finds solutions to them, possibilities will arise which will have an enormous impact on the poverty trap and on incentives.
My right hon. Friend the Chancellor, in his Budget statement, showed himself to be an imaginative tax


reformer regarding corporation tax. I hope that he will consider the theory of removing deductions and lowering the rates when he reforms income tax. The result would be a fairer, simpler and more economically neutral tax system with a basic rate of tax of 10 per cent. That would have a considerably greater impact both on incentives and on the poverty trap than continuously raising thresholds.

Mr. Andrew Rowe: I support with enthusiasm the speech of my hon. Friend the Member for Lewisham, West (Mr. Maples). We should proceed in precisely the direction that he suggested. It bears out what hon. Members have said previously—that if the surveys of the social security system which are being carried out are taken separately from the taxation system, we shall end up with embarrassing nonsense. I hope that the surveys of the social security system will be carried out in such a way as to make possible the sort of progress towards tax reform which my hon. Friend so ably outlined.

Mr. Hayhoe: I suspect that we shall not revamp the whole of the taxation and allowance systems at this hour of the night and on this clause stand part debate. I am sure that the Committee is grateful to my hon. Friends for putting their points so succinctly. These matters will be considered from many angles in future.

Mr. Fisher: The Government cannot get away with this matter quite so easily and quickly. Everybody, apart from the Chancellor and the Minister, recognises that the attempt to tackle the poverty trap, which must interest any Government with a heart and social conscience, by raising tax allowances is the most expensive and inefficient way that the Chancellor could possibly devise. The Chancellor had many options but perversely chose the most expensive and inefficient. That is a disastrous waste of taxpayers' money if it is his concern—it should be—to tackle the poverty trap. After the change the low paid will still pay more in tax than in 1978 and 1979, so the poverty trap will be unchanged.
The major factor is the unknown one of what the Chancellor will recommend later this month or early next month for child benefit. This is the first Budget in which child benefit has not been included. Why? He should have included child benefit in his calculations. The Minister still has an opportunity to give us a reply. When the Chancellor was asked in the Treasury and Civil Service Select Committee why child benefit was not included, he ducked the question.
Will the Minister have the courage to explain the Government's thinking? It is possible that it has been excluded because it has a different effect on public expenditure totals than does raising tax allowances. That would be a discreditable reason, and the Minister should come clean. It is not too late for the Minister to recommend a change of heart to the Chancellor as a result of this debate and what has been written in the press. Even the Sunday Telegraph and the Daily Telegraph have been urging him to increase child benefit and not to waste money on a general and inefficient attack on allowances. That is not the way in which to help the low paid.
The Minister should listen, even at this late stage, to the voice of the Tory press, get his act together with the Chancellor, and recognise that the correct amount by which to raise child benefit, if he is to give it the same

treatment as tax allowances, is at least 95p or £1. I hope that the Minister will take that point on board and that, when he makes an announcement on child benefit, that will be the rate, as anything less will be unjust and unfair and will increase rather than diminish the poverty trap.

Mr. Campbell-Savours: Perhaps I might have a few parting shots on personal relief, or the so-called jewel in the crown. Although the Government might claim credit for substantially increasing personal allowances — by 12·5 per cent. this year — the truth is that it is not possible to accept that as a single measure. It must be seen against the background of other taxation measures that the Government have introduced since 1979. They include the doubling of VAT, which is all too conveniently forgotten. It is easy to find money to reduce income tax if one is willing to impose the tax burden on other parts of the taxation system. As my right hon. and hon. Friends have said, the tax burden on the British people is now £18 billion greater than it was in 1979. We should not dismiss that sum as it is making possible the reductions that are now being made.
There have also been three increases in national insurance contributions since 1979. In 1981, the Government refused to index personal allowances for inflation, and they scrapped the 25 per cent. rate band. There might be arguments for and against the 25 per cent. rate band, but it is interesting that last Sunday the Prime Minister, when trying to contend with opinion polls that showed Labour in advance of the Conservatives leading up to the local elections, said that she looked forward to the possibility of reintroducing a 25 per cent. income tax rate band—the same as she was bequeathed by a Labour Government.
8.15 pm
There have also been substantial increases in rates, which are just a local form of taxation. Substantial rates derive from cuts in expenditure. All that has happened is that one tax has been substituted for another. According to the Government's own statistics given in parliamentary replies, it is clear that taxes in the United Kingdom have risen faster since 1979 than in any other European Community country. The truth is that the £1·27 tax benefit resulting from the change in personal allowances will be wiped out for the great majority of the population by the 91p a week duty increases that it has been calculated will fall on every one of our constituents. If we include the additional VAT that is to be imposed on home extensions and fish and chips, there will be no benefit for the average man from personal allowance changes. No one should be duped by the Government's propaganda that, through this Budget, the Conservatives have helped the British people by reducing their tax burden.

Question put and agreed to.

Clause 21 ordered to stand part of the Bill.

Clause 18

CORPORATION TAX FOR FINANCIAL YEARS 1983 TO 1986: CHARGE RATES AND CONSEQUENTIAL PROVISIONS

Question proposed, That the clause stand part of the Bill.

Mr. Roy Hattersley: The Committee will recall that clause 18 deals with corporation


tax and lists the reduction in the rate of that tax from 50 per cent. to 35 per cent., which the Government propose to apply between now and 1986. When that reduction was announced, it was greeted with unqualified joy by Conservative Members. Those of us who stayed up until after 3 am this morning assumed that we would be encouraged to remain for a long time today by a phalanx of Conservative Back Benchers, all of whom would be in their places to proclaim the reduction in corporation tax. Just four are here tonight, but no doubt they will make the best of what has turned out to be a bad job.
It was assumed by the more naive, when the Chancellor announced the reduction in corporation tax, that the net result would be industry paying less tax and getting an increased return on its investment. As the Financial Times pointed out, euphoria at that prospect lasted about a fortnight. Indeed, that newspaper described the reaction to clause 18 as the slow burn from the Hollywood cartoons of the 1950s, in which Donald Duck or Mickey Mouse walk out along a broken branch and take a few steps into the air before realising that they are about to fall fiat on their faces. The euphoria, necessarily and inevitably, evaporated when it was discovered that, as a result of the Budget package as a whole, a comparison and combination of clauses 18 and 57 mean that in the long term companies will pay increased corporation tax and suffer from a reduction in their return on investment.
The cut in corporation tax encompassed in clause 18 is more than compensated for by the withdrawal of the first year capital allowances when they come into full effect. Thanks to clauses 18 and 57, there will be a small investment boom as companies bring forward investment plans to take advantage of what remains of capital allowances. As a result of clause 18 there will be a brief double bonus, because companies will bring their investment forward to take advantage of the remaining years of capital allowances, cheered by the knowledge that the benefits that they obtain from so doing will increase revenue as a result of the reduction in corporation tax.
Whatever happens in the short term, the result of the interaction of clause 18 with clause 57 will mean that industry will pay more in the long term. I hope that we shall obtain the agreement of the Financial Secretary that that is the case. We have already had it confirmed by that most mystical of beings—the Treasury spokesman. I hope that it will be made flesh by the Financial Secretary's confirmation of what has been said by various authorities. The chairman of the north-west region of the CBI, in a letter to the Financial Times on 20 March, said:
Over the period proposed for the transition"—
the period of transition during which tax is cut through the operation of the clause but when tax allowances will be reduced through a subsequent clause—
it is possible to demonstrate that tax payable under the present regime will more than double under the proposed system.
In The Guardian of 16 March it was calculated that the combination of the two clauses, far from reducing industry's burdens, was likely to result in it being raised by about one third. The Guardian article went on to quote a Whitehall source, which said that The Guardian figures were on the high side, but confirmed that the trend was correctly described.
I ask the Financial Secretary to underline and confirm that the reduction in corporation tax embodied in the

clause will not compensate for the reduction in capital allowance proposed in a later clause and that, as a result of the overall package, industry will be disadvantaged.
I am talking about industry as a whole, but the Committee will understand that manufacturing industry in particular will be badly hit. The service industries—with the exception of the banks because of a special problem in relation to leasing that I hope the Committee will discuss later—are by their nature less able to take advantage of capital allowances. The reduction in corporation tax under the clause will, therefore, produce a net benefit for many of them.
The benefit will be provided at the expense of manufacturing industry — a sector that the Chancellor seems to have written off. Let me remind him of the position of investment in manufacturing industry. Since May 1979—I choose the month at random—there has been a 42 per cent. drop in manufacturing industry investment. The Budget, by a combination of reductions in capital allowances and corporation tax, will accelerate that trend. That seems to be a matter of no concern to the Chancellor. He is openly sceptical about the role that manufacturing industry will play in the long awaited recovery of British industry.
The Chancellor was openly sceptical when he discussed those matters with the Treasury and Civil Service Select Committee. His scepticism was reported in the Committee's fourth report. He told the Select Committee how he expected Britain to compensate for the inevitable decline in oil revenues. He was, in the words of the report,
unwilling to be specific.
He
preferred instead to rest his case on market forces.
The Treasury and Civil Service Select Committee's fourth report chose to be more precise than that in its references to capital allowances and corporation tax. It said:
We believe that, of necessity, the declining oil revenues will need to be replaced with increased manufactured exports.
That is surely right. Yet, the proposals in clause 57, when they are balanced out by the proposals in clause 18, will make the recovery in manufactured exports—indeed, in manufacture in general—much more difficult. I must make it clear that the Select Committee's conclusion, which the Committee will find it difficult to contest, is that the Government have made the recovery more difficult by introducing clauses 57 and 18, because investment is less likely.
he Select Committee's decision is wholly unrelated to the classic argument whether investment in industry is best encouraged by a generally low rate of tax that allows entrepreneurs and owners to make their investment decisions from a high profit base, or by tax allowances specifically geared to encourage new investment. In the Budget debate I said that the provision of high levels of profit would not of itself bring high levels of new industry. In the past two years, a great deal of money has been, in the City's language, "sloshing about" in the British economy. Much of it has been exported and some of it retained. At least one British company — GEC — has what amounts to a profit mountain that it feels reluctant to invest, for several reasons. Much money is available for all sorts of purposes.
I do not believe that the provision of higher profit levels will cause increased investment levels, but that argument should not concern us. The combination of clauses 57 and


18 does not allow us to use that argument, as that will provide a lower level of retained profits in British industry, not the higher level proposed by the Chancellor—at least, a lower level of retained profit in the manufacturing sector.
Despite the weak-minded enthusiasm with which clause 18 was greeted on the Conservative Benches on Budget day, the net result of the package, of which the Minister of State reminded us to take proper cognisance, is that by 1986 companies in general and manufacturing companies in particular will be paying more tax.
I shall conclude by asking, perhaps rhetorically—who knows, perhaps this is the debate in which our questions will be answered for the first time—why the Chancellor chooses a course that requires industry in general and manufacturing industry in particular to pay more. His first object is, of course, to raise extra revenue from industry—perhaps as much as —1·5 billion in a full year. I understand that need. If the Chancellor pushes up taxes each year, as he does, the money must come from somewhere. This may be one of the sources of that additional annual tax burden of £21 billion.
The second reason, which the Chancellor would be more likely to give openly and publicly, is the adjustment of relief on specific investment and the increase in general profits for the use of investment that is implied in clause 18. That is to avoid what the Chancellor chooses to call "investment distortion". By that he claims to mean—or he says that it exists—a phenomenon by which industry invests according to the tax allowance that it is likely to receive rather than the innate profitability of that investment. I am extremely sceptical that that will ever happen.
In order to avoid the distortions described by the Chancellor, to give general relief provided by the clause and to remove the specific relief in clause 57, the Chancellor has engendered two years of intense and continual distortion. Companies are bringing forward investment plans to catch the last two years of capital allowances — a system that can best be described, according to the Select Committee, as "capricious investment timing." I make it clear that, in relation to the reduction of corporation tax embodied in the table in the clause, I want to see more capital investment in manufacturing industry. I believe that that will come about only through direct fiscal encouragement and direct investment. Such direct investment creates new jobs and improves efficiency.
8.30 pm
However, unfortunately we are burdened by a Chancellor who is, at best, neutral about new investment in manufacturing. He sees our economic survival, or our economic revival — if he sees it at all — as coming through the service industries. The combination of clauses 18 and 57 is specifically intended for, and will have the result of, shifting investment out of manufacturing and increasing the opportunities for the service sector. The two clauses constitute an act of discrimination, pushing the balance of advantage in one direction and reducing it in another.
I do not believe that the shift thereby involved—the encouragement of the service industries at the expense of manufacturing—offers the remotest prospect of reducing

unemployment to an acceptable level. I in no way want to denigrate the importance of service industries, both public and private, but they are not an alternative to manufacturing. We should particularly encourage the so-called sunrise industries, yet clause 18—and clause 57, which must be read in conjuction with it — fails to provide the special incentives that those industries require. That combination will result in a reduction in liquidity in those new and innovatory industries when the change, with benefit from one scheme and disadvantage from another, comes about. All those so-called sunrise industries — the high technology industries — have complained about the disadvantage that they will suffer when the change comes about.
I do not have to remind the Financial Secretary of the other industries that have complained that the reduction in corporation tax will nothing like compensate them for the abandonment of the capital allowance that we shall debate later. The most spectacular example is the British film industry, which believes itself to have been cruelly deceived by the Government into the belief that, with its remarkable recent success, its earning capacity and its contribution to the British economy, it was to be advantaged by the Government's policy. However, it now discovers that the new system — by which capital allowances are abandoned, with in some way compensation through a reduction in corporation tax — will provide no benefits, but will penalise it.
I could give many other examples, but I shall conclude by repeating the central thesis of my complaint against the clause. It was said on Budget day that the scheme would provide more retained capital for industry and would therefore encourage investment if entrepreneurs behaved in the way in which, in the Chancellor's romantic imagination, they are supposed to behave. In fact, when the result of the clause is compared with what comes later in the Bill, we discover that industry suffers a net disadvantage. It transcends all the arguments about investment inducements and all the disputes about whether the measure should be specific or general. The fact is that in 1986 industry will be worse off. I hope that the Financial Secretary will have the grace to confirm that that is an arithmetic fact and will explain how the Chancellor can justify that position.

Several Hon. Members: rose—

The Temporary Chairman (Sir Michael Shaw): Order. Before we continue with the debate, I should remind the Committee, although I do not wish to criticise the speech of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), that inevitably there is some crossfiow of argument between clauses 18 and 57, and I hope that any mention of clause 57 will be made, as the right hon. Gentleman did, only in relation to clause 18.

Mr. Fisher: As my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) said, the most curious thing about the change is the fact that the Chancellor chose to justify it by saying that he desired to eliminate tax inconsistencies made by artificial and external tax structures and anomalies in the tax system. However, the Chancellor is creating greater inconsistencies and anomalies, not only through the phasing mechanism that my right hon. Friend mentioned, so that there will be an artificial rush of investment, as companies seek to enjoy the tiny tax advantages, but—this is an


important matter—between the advantages of raising money for companies by loans and through equity. If, as I suspect, over the next two years inflation begins to increase, the disparity between raising capital for industry through loans and through equity will increase. That will have a serious and unbalancing effect on industry.
I believe that the Chancellor is going against many of his avowed intentions. In so far as he does, it is at the expense of creating a general disincentive to invest. As my right hon. Friend said, that is confirmed by the report of the Select Committee on the Treasury and Civil Service.
The interesting context for this matter is that the Government appear to have done a U-turn on their entire policy. I understood that the thrust of the medium-term financial strategy proposed by the previous Chancellor was to reduce inflation and interest rates. One of the main purposes that the right hon. and learned Gentleman kept on emphasising was that the reduction of inflation and interest rates would help investment. Apparently we still have the medium-term financial strategy—at least it is nominally intact, although possibly many people on the Select Committee and elsewhere consider that the Government's stance has changed quite a lot in practice. However, these tax changes discourage investment. That is a complete volte face by the Government and should be recognised as such.
We said in the debate yesterday — no doubt, unfortunately, we shall say on amendment after amendment and clause after clause—that the Chancellor has introduced the measure without, apparently, any consultation with British industry, certainly not with British manufacturing industry. The 1982 corporation tax Green Paper said:
full and informed public discussion …is an essential precondition for any further major change
in corporation tax. After the Government gave themselves the good advice that if they were to change corporation tax they needed to consult British industry, the Chancellor has gone ahead and taken action without consultation or recognition of the real effects. The Chancellor received plaudits from the press on day one after his speech for, apparently, an imaginative and brave step. He characterised it as a shift from capital to labour. That was a misleading and disingenuous description. Whatever the right hon. Gentleman said on the day of his speech, the people have seen that that is not so and that he should have consulted British industry. Had he done so, he would not have made a mistake.
Not only has the proposal been made without consultation, but the Select Committee evidence shows that it was done without figures that could be reliable or helpful to the Chancellor. When the Treasury officials were questioned, they were asked about the acceleration in investment, to which my right hon. Friend and I have referred, and which we believe is artificial. One official was asked whether that acceleration would be artificial, and he agreed that it would.
When asked what figures Treasury officials had been able to give the Chancellor to show the artificial acceleration and the fact that any acceleration would come only from the phasing out mechanism, the official said:
It is very difficult to estimate that. We can give you some figures of the incentive to accelerate the reduction in the cost of investment if it is carried out a year earlier.
When asked again the question:
The Chancellor's statement was not made on any figures you gave him but was more a hope that this would happen?",

the Treasury official replied:
We did provide some figures which are included in the forecast.
When asked whether he could give those figures, he said:
These figures are very unreliable. There is a very wide margin of error around them.
We can now see that the increase in investment from 4 per cent. in the autumn statement to the 6·5 per cent. mentioned in the Red Book was artificial, and, on the Treasury's admission, the figures on which the decision was made were unreliable and have a wide margin of error. This important change for British industry was not only introduced without consultation with the industry but based on figures that the Treasury has said are in part unreliable.
As my right hon. Friend said, these changes in corporation tax, when taken together—I shall not refer to this except in passing—with the changes in stock relief and capital allowances will hit manufacturing industry and its desire and need to invest. Manufacturing investment is already down 42 per cent. on its 1979 level. In that sorry and reduced position, this corporation tax change hits it again. What is worse, the part of manufacturing industry that will be most affected is the capital-intensive industries with expensive research and development. That will mean high-technology industries such as computers, which one would have thought any sane Government would have realised should be encouraged.
If the Financial Secretary addresses himself to these points when he answers the debate, can he explain how it is that the Chancellor allowed himself to introduce changes in corporation tax that single out capital-intensive industries such as the sunrise industries, which we desperately need for tackling the problems of the next generation of industrial development? Why is it that corporation tax pinpoints and targets them for attack and disadvantage? It is extraordinary.
Some interesting work has been done by the Institute of Fiscal Studies, which took a profitable manufacturing company which is investing, as all hon. Members have been urging manufacturing industries to do and has reasonable-sized stocks, and looked at its tax position before and after the Budget. This is a remarkable and educational exercise.
The company has £25 million of profits, the capital that it invests in any one year is £20 million and it has stocks running at £50 million. Before the Budget, the capital allowances of such a company would be £21·4 million, the taxable profit would be £3·6 million and the tax payable would be £2·9 million. Before the Financial Secretary picks me up on this, I add that there would be £1 million in national insurance surcharge to be paid in addition. After the corporation tax changes, the capital allowances will be £7·7 million, the taxable profit will be £18·3 million and the tax payable will be £6·4 million. That is more than double the tax payable on just the sort of company that one would have thought that we should want to make more profitable — a manufacturing company making profits and investing. Surely, leaving politics aside, that is the sort of company that the Government should be encouraging. Instead, they are taxing it twice as heavily.
8.45 pm
One of the Chancellor's claims is that his Budget helps labour and that he sees it as a shift from plant and


machinery and investment to helping labour and employment. That claim does not stand up. It will be interesting to hear the Financial Secretary try to justify this rash statement by the Chancellor. Does anybody seriously believe that when companies in the real world get an increase in profits—I suspect that many companies such as the one that I described will not get one—they will put it into higher wages, increased investment or perhaps both? We can be pretty sure that in the present climate the profit is unlikely to go into increased employment. The answer to the Chancellor's claim that the changes in corporation tax will lead to more employment can be seen in the unemployment figures every month, in which the real underlying rate of employment goes inexorably up.
By implication, the Chancellor also appears to be saying in the Budget that some industries are investing too much—they are investing artificially and should not be investing in the things in which they are investing. Can the Chancellor believe that? Can the Financial Secretary, when he answers the debate, say that he believes that there are manufacturing companies that have spent too much on investment, have too heavily capitalised, and are spending too much on research and development? Is that his experience of companies in his constituency and other constituencies?
Which of us, going back to our constituencies, goes into a manufacturing company and says, "By gum, there is too much plant and machinery here—we are far too much ahead of the world in this."? That is the most absurd idea. In the companies in my constituency, and I suspect those of other hon. Members, the exact opposite is the case. We go into manufacturing companies and see plant and machinery that are old and outdated and we are told that the Belgians, the Italians, the French or the Dutch have more modern machinery which does the same job faster. That is what we need to invest in, but because of high rates of interest over the past few years companies have found it increasingly difficult and expensive to invest in such machinery.
In the real world, the Government have given disincentives through real interest rates being too high in the past four years. Despite that, there are changes in corporation tax which will provide further disincentives for those manufacturing companies. We are seeing changes in corporation tax that will speed the shift from manufacturing industry and apparently, according to the Chancellor, towards the service sector.
I fear that that is what will happen. Yesterday's trade figures clearly show the stupidity and tragedy of that. The figures underlying the trade figures show that in manufactures this country is almost ceasing to exist. Were it not for North sea oil, our economic and industrial policies would be revealed as bankrupt. When the Financial Secretary answers the debate, I hope that he will address himself to that problem. Does he feel, like the Chancellor, that it is somehow inevitable — a fact of history—that our manufacturing industry will go down the drain, or does he recognise that beneath the thoroughly cosmetic and short-lived figures of North sea oil we are witnessing a de-industrialisation, a de-manufacturisation?
This corporation tax change will accelerate that trend and make it worse. That is a serious prospect. The oil revenues will level out; we should address ourselves to that problem now. It is no good saying that the money will

all be taken by the service industries, because, apart from the invisibles, few service industries can be exported. We have relied on our manufactured exports and the figures yesterday show that we are in a disastrous position on manufacturing exports. The Financial Secretary may say, as the Chief Secretary said so often yesterday, "What is the alternative? What could we have done apart from this?" I believe that the existing system, for all its inadequacies and anomalies, is better than the one that the Chancellor proposes to introduce.
It is possible that the Chancellor could have looked on a flow-on funds base for corporation tax. He could have considered the 1978 Meade committee report and examined its recommendations. If he really wants neutrality between different forms of assets, and in the investment potential in different economic circumstances, whether inflation increases or decreases, if he really wants neutrality in the advantages of raising capital by debt or by equity, as the Meade committee showed, there are many advantages in a flow-on base for corporation tax.
The fact that the Chancellor appears to have ignored the report of the Meade committee shows that his motivation is not a search for a more neutral corporation tax position, but a thoroughly ill-considered and ill-judged reaction in favour of the fashionable idea of service industries, and away from the much more fundamental and necessary element in the country's economic structure, which is manufacturing industry. This is not a neutralisation of corporation tax. These changes in corporation tax will seriously damage our manufacturing industry and, in so doing, will damage the entire economic structure. It is a disaster against which I hope all hon. Members will vote.

Mr. Robert McCrindle: I seek to detain the Committee for a short time only to draw its attention to the disadvantageous effects of clause 18 on the operation of insurance companies. Insurance companies are specifically referred to in subsection (4). I hope to persuade the Committee, and even the Financial Secretary to the Treasury, that in the casting of the clause there is a considerable disadvantage to insurance companies which, in the long term, is likely to work through and prove to be a disadvantage to life insurance policy holders and to those of us who look to the insurance companies to provide our pensions in the future.
It has been said correctly that the service industries in general, and, I suppose, insurance companies in particular, have not been able to take major advantage in the past of capital allowances, so that few tears will be shed on the reduction of capital allowances in respect of insurance companies.
Secondly, it may be thought to be good news that insurance companies can look forward to a rate of corporation tax in 1986 of 35 per cent. , and in that there will be no difference from other companies, whether they be in the service industry or in manufacturing industry. For a considerable time, a static rate of 37·5 per cent. has been payable by insurance companies, as referred to in subsection (4). Therefore, the advantage to insurance companies in the period between now and 1986 is substantially less than that which will accrue to other companies. It is true that, by 1986, at a rate of 35 per cent. , the insurance companies will be paying 2·5 per cent. less than they have been paying for some time. However, there is concern among the insurance companies that, in moving to that situation, they are being asked to sacrifice one


priceless advantage—that they have known in advance the maximum and minimum rates of corporation tax to which they will be subject.
Insurance is notoriously a long-term business. In terms of investment, so as to produce the bonuses under life insurance and endowment policies, and in terms of pensions, so as to produce, it is hoped, a reasonable standard of living for millions of our fellow citizens, it is necessary to know well in advance what the corporation tax liabilities are likely to be. If the Committee agrees to include clause 18 as it stands as part of the Bill, I respectfully suggest that that will become increasingly difficult to do. I have to ask the Financial Secretary to the Treasury what sort of advice he has to offer to the insurance companies, assuming that the Committee agrees that clause 18 should stand part of the Bill. If it is not putting it too strongly, I suspect that in some ways the insurance companies would prefer, even in 1986, to be taxed at a rate of 37·5 per cent., as they are at present, provided that they are then able to continue to have the assurance, which they have had for a considerable number of years, that they will be subject to that rate alone.
We hear a great deal from Government sources about the opportunities that are opening up from the service industries in terms of employment and suchlike. I think it will be agreed that one of the service industries that has provided opportunities for employment over the last decade is, indeed, the insurance industry. It has expressed the view to me frequently that the disadvantage implicit in the proposed change in corporation tax will be a major setback to it.
In the past, Governments clearly have presumed that it is correct to give some special consideration to insurance companies, I think partly because of the long-term investment point that I have already made. If it has been considered correct to give that special consideration in the past, I have to ask my hon. Friend the Financial Secretary why, in moving in the direction which the majority of companies in the United Kingdom must welcome, it is thought appropriate now to withdraw the special consideration to which the insurance companies have been privileged. In terms of continuity, which is important in long-term investment areas, I draw the Financial Secretary's attention to the unsatisfactory nature of this change in respect to insurance companies, and I ask him what advice he may have to offer to enable them to continue service to the public by way of life policies, endowment policies and pension policies, which have been the hallmark of the achievement of British insurance companies in the past.

Mr. Bell: In making his Budget statement, the Chancellor said that he was seeking to remove what he described as undesirable distortions, because he wanted to get the corporation tax rate as close as possible to the basic rate of income tax. If he were to do that, it would take us back not to the Victorian era, which is so pleasing to the mind of the Prime Minister, but to the Edwardian era. Not until 1915 were corporate tax and personal tax on the same basis. We are taking a step back into the past in seeking to accommodate the Chancellor's wish to bring corporation tax in line with income tax.
It has been said that some parts of the Budget are the jewel in the crown of the Chancellor, a remark that I believe was made in relation to personal taxation. I was under the impression that the jewel in the crown was the

reduction in the rate of corporation tax. The reduction in the rate of corporation tax can be brought about only by the abolition of stock relief and capital allowances. I shall not fall into the trap that has been clearly demonstrated in the debate of speaking to clause 57, which the Committee will consider later.
The result will be that in two or three years more companies will fall into post-tax profit liability than at present. The euphoria among Tory Back Benchers and the support from the City for the Chancellor's proposals began to evaporate once the computers had calculated the result. All the banks, both large and small, have had to revise their balance sheets to provide for the time when they will have to pay a reduced rate of corporation tax, which will nevertheless catch a larger number of firms.
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The Chancellor said that in his view the reduction would be an incentive for firms to take on more workers. The last such scheme—Lord Barber's dash for growth in the 1970s—resulted in a dash to invest abroad and in property rather than in jobs. I fear that the present reduction in corporation tax will also not create jobs in either the service sector or the industrial sector. Both sectors have been dealt with in the debate. We believe that it is desirable to support both. They are not mutually exclusive. There is no need to hinder or handicap manufacturing so as to support the service sector.
The reduction in corporation tax will affect the banks and leasing. The banks have gone into leasing in a big way, offsetting their profits by leasing equipment to businesses on favourable rentals, thus assisting the firms involved. We shall deal with the impact of the abolition of capital allowances later, but it is clearly an illusion for the Chancellor to state that there will be any assistance to manufacturing or to employment.
The Chancellor also made the following statement in introducing the Budget:
The substantial reduction in the rate of corporation tax will bring a further benefit. Our imputation system allows a company to offset in full all interest paid"—
that is, interest paid to banks.
But only a partial offset for dividends is allowed. Companies thus have a clear incentive to finance themselves through borrowing and in particular bank borrowing rather than by raising equity capital."—[Official Report, 13 March 1984; Vol. 56, c. 297.]
That is an extraordinary statement, encouraging firms both large and small to borrow money, and scarcely reflects the Prime Minister's comment in February 1981 that we should get rid of borrowing and excess spending.
The Chancellor is encouraging firms to borrow money from the banks rather than raise investment capital in the market, which one would expect a Conservative Chancellor to support. It must surely be wrong for any company in our society to put itself into the hands of the banks. Yet that is supposed to be one of the advantages of the Chancellor's corporation tax proposals. We shall seek to show that it is not a bonus but a handicap because most money is borrowed on a short-term rather than a long-term basis and the interest rates are those of the market. If interest rates rise the cost of borrowing rises, affecting not only the cash flow but the future prospects of the firms involved.
The Chancellor said in his Budget statement that the tax reformer's path was a stony one, but we see no reforrn in his proposals. Banks and leasing corporations will be badly affected and it is clear, that company boards are most


concerned about their tax bases rather than commercial considerations. All must now re-analyse their future growth prospects as a result of the Budget proposals on corporation tax, which emphasise the service sector rather than manufacturing industry. My right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) referred to the 42 per cent. fall in manufacturing investment since the Conservatives came to office in 1979. Nothing in the Budget or in its proposals for corporation tax will improve that trend.
Another aspect that the Chancellor has not taken on board is the effect of inflation. We accept that inflation is down to 4·5 per cent. The Chancellor believes that it will be about 4·5 per cent. in the autumn, but even that will be an increase as it means that costs will go up by 4·5 per cent. a year.
The abolition of stock relief will not assist firms in handling their cash flow problems because inflation is no longer part of the equation. Such abolition may be bold, but it may also be reckless. Given that no one can tell what will happen to interest rates in the United States after the presidential election, no one knows what will happen to inflation worldwide. We therefore hope that the Chancellor has not been imprudent in abolishing stock relief in relation to corporation tax.
My hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher) mentioned various alternatives, such as the Meade committee in 1978 which discussed a flowof-funds base for corporation tax. The Chancellor has not taken that on board. However, the corporation tax Green Paper in 1982 stated that there would be a
full and informed public discussion",
and added that that
is an essential pre-condition for any further major change",
and that
before bringing forward any further major change in structure"—
of corporation tax—
the Government would wish to establish very carefully whether there was a general consensus that the benefits of change clearly exceeded the costs of making it".
Again we have taxation without consultation. There have been reductions in corporation tax without proper discussion. There has been no proper discussion of the impact on, and possibilities for, our industrial sectors. Here we have the principle of the unforeseen consequence. In my view, that will not mean that more firms will have to pay corporation tax but that industry as a whole will suffer. No doubt we shall be able to expand that argument when we debate clause 57.

Mr. Austin Mitchell: It is extraordinary that yesterday, when we discussed important social issues, so few Conservative Members attended. It is even more extraordinary that fewer have attended today, when we are discussing a question that is of central and paramount interest to business—[HON. MEMBERS: "What about the Opposition Benches?"] But we are discussing corporation tax, which affects business men.
This issue is central to the sector of the economy that Conservative Members claim to represent, yet there have been few contributions from them and, apparently, even less interest.
The changing balance between clause 57 and clause 18 and the abolition of stock relief means a substantial change

in the climate in which business must operate. In 1979 when it came to power, the Conservative party said that it would provide business with a climate of fiscal certainty in which to plan ahead in the knowledge that there would be no drastic changes in tax policy.
The Government have certainly provided the climate—that of a Frigidaire or the graveyard, in which a large section of industry has perished and the number of bankruptcies has rapidly increased. Apart from that, there has been a substantial change in the regime now facing industry, with new uncertainties accruing from the combination of clause 18 and the allowances.
As a result of the abolition of stock relief and the reduction in the allowance, there has been a dramatic shift from machinery and capital to labour. This sudden change, which will have far-reaching consequences for industry over the next three or four years, has been introduced by a Government who claim to have provided continuity and certainty.
Far from being the philosopher of the tax system, which the Chancellor often claims to be, he is reacting like a journalist. However, I do not put him on the same level as my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) who I regard as a writer, but the Chancellor is reacting like a journalist by changing for the sake of change. That is happening in the balances as they are affected by the clause and by clause 57. That provides uncertainty for the industry.

Mr. John Townend: The hon. Gentleman's constituency is in the same part of the country as my constituency. Has he discussed the corporation tax changes, the abolition of stock relief and the changes in capital allowances with business men and industry in his constituency? During the weekend I attended a meeting with most of the leading business men and industrialists in Hull. They strongly recommended the changes because under the old system there were far too many distortions.

Mr. Mitchell: The hon. Gentleman rightly says that we have constituencies in the same area. My constituency does not want to be in the same part of the world as his constituency. I say that not for personal reasons, but because it does not want to be in the county of Humberside.
In the 1982 corporation tax Green Paper, the Government said that
full and informed public discussion …is an essential precondition for any further major change …before bringing forward any further major change in structure (of corporation tax), the Government would wish to establish very carefully whether there was a general consensus that the benefits of change clearly exceeded the costs of making it.
There has not been consultation. This sudden, drastic change is being introduced without the consultation that the Government said was central to their policy.
The hon. Member for Bridlington (Mr. Townend) asked whether I had consulted. Of course I consulted. There is a continuous dialogue in my constituency. In such a dialogue we discover the real grievances of industry—not the glossy, public relations platitudes put out by the supine and servile CBI, which has been rejoicing in its own destruction for so long.
My central point is that there might be a case for shifting the balance of incentives from machinery and capital investment to labour. The Treasury and Civil Service Select Committee said in its report:
Given existing levels of employment, which is the prime consideration for the Committee, we welcome the fact that the Government has taken steps to lower the relative cost of labour.
Will that change, which might be acceptable in a theoretical sense, provide the incentive to investment that we all want if the country is to succeed industrially? The problem will not be a shift from capital to labour, but the fact that there will be a cut in all investment because of the measures in the Budget and the changing balance between the rate of corporation tax and the allowances in clause 57. Laggardly investment — which has always been the case in Britain — needs encouragement and incentive if it is to be sustained at even its mediocre level to date.
Industry, especially the international trading sector, works in a climate of international competition in which it must invest—not necessarily because it wants to do that, but because investment is the only sure route to survival in an increasingly intense competitive position. Any attempt to shift the balance in the way that the Chancellor is doing will mean a faltering of investment, which has always been laggardly, and has reduced drastically under this Government.
There is increasing discrimination against manufacturing, where the need for investment is paramount. The Chancellor is prejudiced against the manufacturing industry, and that is certainly felt by the industry in my constituency. The Chancellor does not have faith in that sector of the economy, yet he should because of the massive job losses of recent years — 2·5 million under this Government; a great achievement of Thatcher economics—1·5 million have been in the manufacturing sector. The jobs that will provide for the future of our children will have to come primarily from manufacturing. Our ability to survive in the world must come from manufacturing. Indeed, the Select Committee pointed out that growth in the economy must come from manufacturing as oil begins to run out. Even more important than that, the service sector, to which the Chancellor attaches great importance, rests on the base of manufacturing, and if that base erodes, as it has been doing under the Conservatives—
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The Temporary Chairman (Sir Michael Shaw): Order. The hon. Member is now firmly, and he has been for some time, dealing with clause 57.

Mr. Mitchell: The effect of the change in clause 18, taken with the change in the allowances in clause 57, is to discriminate against the manufacturing sector of the economy, and that must be pointed out in any analysis of the changes introduced by the Finance Bill.
However, I leave that and move on to the changes introduced in corporation tax, for we are seeing not only a regime that is less favourable to manufacturing but one which still has non-neutralities in it. Debt is still, even with the change proposed by the clause, favoured over equity. We have the extraordinary situation, in the light of the experience of the last few years, of moving the base for corporation tax back to an essentially historic cost one that takes no account of the effects of inflation. That means that the tax system will discriminate against investment in stock.
It also means that the higher the rate of inflation, the greater the degree of tax discrimination in favour of debt and against equity. Indeed, if the inflation rate rises substantially in future, it is inevitable that there will have

to be a reintroduction of stock relief, producing yet another of those zigzag changes which I am criticising in the clause.
There might be a temporary windfall gain to existing shareholders, rather than an incentive to new investment, but the long-term burdens in the future for business will be substantially increased. I hope that the Minister will comment on the case put forward by Mr. Jack Summerscale of the City firm of stockbrokers de Zoete and Bevan. The argument is that, because of this change, the Budget conceals an increase in the amount of tax paid by companies and that that could bring the Chancellor up to £1.5 billion in extra revenue in the financial year 1986–87 because the tax paid by firms will rise from about one third to 40 per cent. of their profits, despite the planned reduction in corporation tax in clause 18 from 52 to 35 per cent.
As corporation tax drops, much more of the profits of many companies will become taxable, so that the percentage of their profits that goes to the Government w ill rise for several years, will peak and will then fall. The time at which it will peak is the most interesting part of the analysis, because the peak period will be 1986–87. En other words, a Government who have been relying increasingly on the windfall tax revenues, currently running at perhaps £9 billion a year, from North Sea oil will have a further windfall profit from the taxation of business in that year. That would be a nice climate for a general election. However, I am not asking the Miniser to disclose whether it will be an election year. Instead, I ask him specifically whether the arguments advanced in the report are correct, whether there will be a peaking of company taxation in 1986–87 and, if so, how he justifies that in the light of the Government's desire to stimulate investment and to provide incentives for industry.

The Financial Secretary to the Treasury (Mr. John Moore): We have had a short and useful debate during which the interaction of the package of reforms has been considered. I make no objection to that, for it is right and proper that we should try to interrelate the reforms. I accept that it is difficult to segregate one from the other. However, I join my hon. Friend the Member for Bridlington (Mr. Townend) in being somewhat surprised at the tone of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) at the beginning of his contribution, when he suggested that there was some sort of distress in the business community about the nature of the tax reform package.
I remind the right hon. Gentleman of what we heard overnight—it has probably been printed in today's press—about the Institute of Directors' latest survey. I shall quote from the survey of industry and business and not from the institute. Part of the survey states:
The corporation tax structure from 1986 onwards will be an improvement on the present structure …our latest quarterly survey of membership opinion conducted during April shows a remarkable 83 per cent. approving the Chancellor's changes as they affect the gradual reduction of corporation tax rates and matching withdrawal of capital allowances.
That is a rather more up-to-date reflection of that which many of us find in our constituencies and throughout the country when we discuss the nature of the business tax reform package.
The clause proposes a four-year programme of reductions in the main rate of corporation tax. The changes are an important part of the package of measures


announced by my right hon. Friend the Chancellor of the Exchequer in his Budget and included in the Bill. They will stimulate enterprise and set British business on the road to profitable expansion. Two principles have guided the shape of these reforms. The first principle is the need to make changes that will improve our economic performance over the longer term. The second principle is the desire to simplify the tax system.
There has been much discussion about reducing corporation tax rates and the rates are clearly being reduced. Why has the decision been taken to reduce them? First, we believe that the burden of tax on the corporate sector is currently too heavy. Under the proposals in the clause and elsewhere in the Bill, the tax burden on companies and businesses generally will be reduced over the next two years to the tune of about £900 million.
The right hon. Member for Sparkbrook asked me specifically about the transitional period and the longer term. I refer him to the article in The Guardian on the de Zoete and Bevan report. There may be some increase in corporation tax in 1986–87 but over the period from 1984–85 to 1988–89 the corporation tax changes will, as my right hon. Friend stated clearly in his Budget statement, be revenue neutral. Apart from this, companies will derive a much larger and continuing benefit from the abolition of the national insurance surcharge, especially over the longer term.
During the transitional period these measures will be broadly neutral, but by the end of the 1980s and into the 1990s business will benefit overall from the 35 per cent. rate of corporation tax. In addition, there will be from October the benefit of the abolition of NIS. There cannot be a period of revenue neutrality and even advantage in the first two years without disadvantage in the other part of the revenue neutral period. After the transitional period, we do not expect the corporate tax bill to be increased in the longer term.
The hon. Member for Great Grimsby (Mr. Mitchell) asked specifically about the references to the de Zoete and Bevan report which were picked up in The Guardian on 16 March. My right hon. Friend the Chancellor of the Exchequer did not conceal in his Budget speech that the effect of his stock relief and capital allowance measures and corporation tax changes, taking into account the transitional period, would be some increase in revenue. We believe that the figures quoted by de Zoete and Bevan are too high. Factors may have been overlooked such as the effect of forestalling in bringing forward investment in 1985 as well as in 1984. The overhang of tax losses and stranded ACT are also critical. A factor more difficult to quantify is the prediction of profit buoyancy and the general but stimulating effect of the Chancellor's measures.
The burden of company taxation is not simply a function of the nominal rate of tax. The present nominal rates of corporation tax are too high, partly because, as many hon. Members and the Labour party's economic programme for 1982 have said, of the number of special reliefs and allowances against profit. Cutting back on those aspects enables us to reduce the rate of corporation tax.
I shall give the framework around our proposals.

Mr. Hattersley: It is a new accounting procedure to talk about a four-year period being tax neutral. Will the hon. Gentleman clearly tell the House whether I am right to say that at the end of the transitional period the annual burden of corporation taxation will be higher than it is now at the beginning of the transitional period?

Mr. Moore: I could not have been clearer, but I shall repeat my statement. In a period of transitional change the assistance given to the business community by the benefits of the first two years of change is offset to some extent by the third and fourth years. The right hon. Member for Sparkbrook asked specifically about the period after the transitional period. It is difficult to be specific and to quantify this matter when we expect the proposals to generate increased profitability in British industry. We do not expect the corporate tax bill to be increased in the long term after the transitional period. There will be tax neutrality after the end of that period. We do not expect the corporation tax burden to be increased.

Mr. Hattersley: I am sorry to press the Financial Secretary on this matter, but he answered a question that I did not ask. I did not ask him to prognosticate about what will happen after the transitional period. I asked him about the tax take at the end of the transitional period, for which the Chancellor had budgeted. I suggested to the hon. Gentleman that the tax take from companies at that time would be higher than it is now. I asked the hon. Gentleman to confirm that point. As he is not giving a simple answer to a simple question, I shall tell him the answer. The answer is yes, and Treasury spokesmen agree.

Mr. Moore: I thought that I had put the point on the record as clearly as I could. If I did not, I shall repeat it. There may be some increase in corporation tax in 1986–87. In the period 1984–85 to 1988–89 corporation tax changes will be revenue neutral.
This programme should be introduced in the corporate sector. We are beginning to see the fruits of the firm financial policies that we have adopted since 1979. Inflation, as Opposition Members have generously acknowledged, has decreased to levels not experienced in the United Kingdom since the 1960s. For almost three years there has been a steady recovery in output. Companies can plan their future profitability on such a stable base. That is critical to a period of transitional change. Company profits have improved remarkably, and last year reflected increases in profit margins and turnover. The outlook for 1984 is that the improvement should continue.
Company liquidity has improved also, and by the end of 1983, judging by past standards, was fairly high. Against that background, company real rates of return remain low by historical and international standards. Accordingly, we believe that we can best help companies by encouraging the type of activity that generates decent rates of return in real terms. The way to achieve that is not by offering indiscriminate subsidies to investment, which can make projects with negative pre-tax returns profitable post-tax, but by lowering the tax bite on profits.
Corporation tax with fewer special reliefs and a much lower nominal rate will reward enterprise. The current 52 per cent. rate of corporation tax is far too high, discouraging profit-making activity. We believe that overgenerous tax allowances have led to an excessive concentration on tax-efficient investment. That is not what


we need. Investment should be based on assessment of the market, not on assessment of the tax rates. Our proposals will leave business freer to make its own decisions and with more of its own money to back its judgment.
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The subject of employment has been raised. We believe that the lower rate of corporation tax with fewer special reliefs, reinforced by the abolition of the national insurance surcharge, will provide an incentive to increased employment especially in the medium term. The writer of the leader in the Financial Times, in a prescient article on 2 March in advance of the Budget, saw that clearly when he said:
The long-term rise in unemployment, indeed, has been virtually uninterrupted since heavy investment incentives were introduced by the Wilson Government in the late 1960s. The change has not helped growth, evidently, nor profits …but it has accelerated the substitution of labour for capital …a reform of corporate taxation as a whole, reducing distortions and passing back the savings in a lower rate of corporation tax would have enormous long-run effects. A neutral Budget could then contain a strong message of help for the unemployed.
I shall be developing that point further because I believe that the points made by the hon. Member for Stoke-on-Trent, Central (Mr. Fisher) merit comment.
The 100 per cent. first-year allowances for plant and machinery have caused the tax system to subsidise unprofitable investment—for example, if a tax-paying company invests in machinery and finances its investment by borrowing it can achieve a positive, after-tax return on its investment even though the real pre-tax return is negative. In short, an unprofitable investment can be made viable by the tax breaks. That does not help the allocation of resources. What is needed, and what our corporation tax reforms achieve, is a more even-handed pattern of incentives so as to improve the quality of United Kingdom investment.
The much reduced rate of corporation tax which we propose will encourage new and existing higher yielding investment. There have been criticisms from the Opposition and in the press about the nature of the proposals — as to whether they have an anti-manufacturing bias. The right hon. Member for Sparkbrook referred to that. The TCSC also cast doubt on the Government's commitment to manufacturing. It is mistaken. The Government are committed to the success of British business—manufacturing as much as other sectors. We want profitable business of all kinds.
The tax system resulting from the Budget does not discriminate against manufacturing. It puts our businesses on a more equal footing by removing costly and indiscriminate tax subsidies for certain kinds of capital expenditure. The savings from that—this is critical—pay for the large reductions in the corporation tax rates which will increase the rewards for profitable investment; the old tax system encouraged investment which often showed a decent return only because of a large tax subsidy. At the same time, a high corporation tax rate discouraged investment in areas not subsidised by the tax system. Is it any wonder that United Kingdom investment as a whole—this is critical in a competitive world—showed a poor return? What is important, and what the Budget seeks to achieve, is to improve the profitability of investment.
The CBI has recognised the opportunities provided in the Budget and the shortcomings of the previous system. At this stage it might be better if I were to try to answer the question which the hon. Member for Stoke-on-Trent,

Central asked about what was wrong with the old system. The old system discriminated sharply between different kinds of investment, as he said. It subsidised investment more, and in a more discriminatory way than in most other countries. Our aim is to remove the distortions, make the system simpler and, critically, more responsive to market rather than tax signals.
The old system discriminated in three ways. It discriminated between different categories of assets. They were treated differently. Debt, as he rightly said, was treated differently to equity. Capital was treated better than labour. The generosity and often discriminatory nature of capital allowances, to a considerable extent, reflected outdated economic and political priorities. They were expensive. They interfered with free market forces. They distorted decision making and produced less than optimum allocation of resources in the economy.
It is a comment that in our country the net product of the most generous system of such arrangements was to produce less efficient capital equipment plant behind the productive worker. That is not the kind of system that we would wish to see continued. The results are there for all to see. The old tax system has not led to a high-investment, high-performance economy—that is the critical point—compared with our major competitors. The system was always justified by the argument that the United Kingdom needed more investment. What we need, however, as I am sure is recognised by all hon. Members, is more profitable investment. All the evidence suggests that it is not under-investment as such but the poor quality and low productivity of investment which lies at the heart of the United Kingdom's problem.

Mr. Fisher: Is the Financial Secretary saying that he can see companies in his constituency and elsewhere which have too much capital investment? Does he not recognise that, when he was implying that the Select Committee asserted that the effect of corporation tax and capital allowances together was to hurt manufacturing industry, he did less than justice to the Select Committee? It was not an assertion. It was based on the evidence given to the Select Committee by the TUC, by specialist advisers and, indeed, by Treasury officials. Will he address himself to the example I gave of the Institute of Fiscal Studies because that shows that manufacturing industry, far from being helped by these changes, will be paying more tax?

Mr. Moore: I am tempted to answer in detail. I shall write to the hon. Member on that example. I have the full details. I am afraid that they are not conclusive in support of the case that the hon. Member is seeking to make. I shall embarrass him more in private through the mail than in public across the Dispatch Box.
As I was saying, what we need is profitable investment. There is no virtue in investment for its own sake. After all, it pre-empts resources and involves the sacrifice of current satisfaction. A capital project is worthwhile only if the return adequately reflects the original sacrifice. Up to now much investment has not done so. It has been undertaken only because it has been subsidised by the taxpayers as a whole. The Association of British Chambers of Commerce said in its reaction to the Budget:
The existing system by which companies sought by unnecessary expenditure to avoid paying corporation tax on profits was a nonsense.
The rates of return on manufacturing capital in the United Kingdom have been consistently lower than those of our


competitors. We have produced much less output per unit of capital than our competitors. For example, an estimate for 1980—I referred to these figures in the Budget debate to show our unfortunate history in this area and I put the details on the record then — showed that Germany and the United States produced twice as much output per unit of capital in manufacturing as the United Kingdom. Looking at the use made of additions to capital stock, the United Kingdom has been producing less output for each additional unit than other countries, particularly in recent years.
I accept that there are many reasons why we have made poor use of capital, but it is hard to escape the conclusion that the tax regime has been a contributory factor. Certainly our system has positively encouraged too much wasteful diversion of investment resources to unprofitable projects at the expense of profitable projects. It has encouraged the inefficient use of capital equipment and it has encouraged the over-substitution of capital for labour.
My hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle), who has long had a reputation of sterling defence of out great insurance industry, raised an important point in relation to this clause. The corporation tax rate on income from investment held in connection with an insurance company's life business and reserves for policy holders is limited to a maximum of 37·5 per cent. Subsection (4) proposes to abolish this pegged rate with effect from the financial year 1986 by which time the main corporation tax rate will be down to 35 per cent. As I am sure all hon. Members will remember, the pegged rate was introduced in 1940. At the time it was introduced the income tax rate had risen substantially and there was also a reduction in the income retained by the insurance companies. It was expected that mortalities would rise as a result of the war. Thus the pegged rate was introduced to help insurance companies cope with a combination of wholly exceptional circumstances.
Whatever the historical reasons for introducing the pegged rate, circumstances are very different today. Tax rates are being reduced, not increased. Thus the 37·5 per cent. rate for insurance companies' life business is being abolished from the financial year 1986 because from then it will no longer be necessary. The income of insurance companies, like that of other companies, will be charged to tax at 35 per cent. and the pegged rate provision will become redundant. My hon. Friend has already expressed to me worry that the removal of the pegged rate will leave insurance companies unprotected from possible future increases in tax rates.
Our aim is to sustain the reduced taxation rates that the clause proposes. Certainty in taxation is not designed for the insurance industry alone. That is why we have, unusually, fixed corporation tax rates for four years to give all companies the certainty that will help them to plan ahead. Uncertainty is not the monopoly of the bank and insurance companies. Indeed, there is more certainty in that line of business than in general insurance.
I accept that insurance business is of a long-term nature, but almost all companies have to make long-term investment decisions. For most insurance companies; not only the taxation on future profits from investment is uncertain, but the profit itself. That is the nature of the business. Investors in industry—for example, preference shareholders—are promised a return which is almost as

guaranteed as the proceeds from a life assurance policy. I am, therefore, not persuaded that the long-term nature of insurance business justifies the protection of a special rate which was introduced many years ago in different circumstances.
The right hon. Member for Sparkbrook and the hon. Member for Middlesbrough (Mr. Bell) discussed the problem of retained profits and investment. A number of figures have been bandied about concerning company profits and domestic and overseas investment. The right hon. Member for Sparkbrook contrasted improved profits and the sluggish domestic investment in 1982. The background to that is germane to tonight's discussion. Between 1979 and 1981 the company sector was squeezed hard between stubbornly rising cost pressures and falling demand at home and abroad. The first task of companies was to protect liquidity. That meant running down stock, rationalising employment levels and cutting back on domestic fixed capital expenditure.
Liquidity has been improving strongly since 1981 as cross pressures have eased and home demand has picked up. That is reflected in a recovery in profitability. The CBI expects an 8·5 per cent. rate of return to be earned by non-North sea industrial and commercial companies this year compared with the low of 4·5 per cent. in 1982. It is to be expected that there will be a time lag between the beginnings of a recovery in profitability and the upturn in investment. After that lag we are now seeing the improvement in company finances reflected in capital spending.
Domestic fixed investment by business is widely expected to improve sharply in 1984. The Budget forecast is for a 10 per cent. increase in domestic investment by non-North sea businesses. More recently the CBI forecast a 7 to 8 per cent. increase in manufacturing investment this year and next.
It is wrong to suggest that at a time of low investment extra profits were simply flowing overseas. Indeed, overseas investment by industrial and commercial companies fell from £5·6 billion in 1981 to £4·2 billion in 1982 and an estimated £4·4 billion in 1983. Over the same period, domestic fixed investment rose from £14·6 billion in 1981 to £14·8 billion in 1982 and 1983.
About two-fifths of investment overseas in 1982 was direct investment—in a declining pattern—by British companies in manufacturing and other facilities. Such investment helps to support jobs in this country by building up links with markets overseas for British goods and processes. About 30 per cent. of United Kingdom exports are shipped to associated companies overseas.
On the other hand, our portfolio investment by financial institutions has shown a substantial increase in recent years. However, it is wrong to suggest that that has been at the expense of investment by financial institutions in United Kingdom equities. The proportion of funds held in United Kingdom securities was the same in the recent past as in the last year of the Labour Government before exchange controls were removed.
As Government borrowing has been brought under control and domestic interest rates have come down, institutions have been able to move out of Government debt into overseas assets. Their investment overseas generates a stream of income which benefits, for example, the 15 million investors in United Kingdom pension funds.
There is no evidence that British companies are suffering from a shortage of finance for profitable


investment. A Finance Bill which provides for a reduction in the corporation tax rate of 35 per cent. should provide ample incentive for investment in the United Kingdom by British firms and financial institutions and foreigners alike. I recommend the Committee to accept the clause.

Mr. Hattersley: The Financial Secretary could not be more explicit in accepting the provisions in the clause and package. The package is tax neutral over the four-year period and moves the tax emphasis from the provision of special incentives to invest to a general reduction in tax on profits. The Opposition regard that shift as wrong.
9.45 pm
My second objection is that the shift moves incentives to invest from manufacturing industry and, therefore, benefits services at the expense of manufacturing industry. We strongly oppose that package and, therefore, we shall divide the Committee and vote against the clause standing part of the Bill.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 233, Noes 126.

Division No. 265]
[9.45 pm


AYES


Aitken, Jonathan
Greenway, Harry


Ancram, Michael
Gregory, Conal


Arnold, Tom
Griffiths, E. (By St Edm'ds)


Ashby, David
Griffiths, Peter (Portsm'th N)


Ashdown, Paddy
Ground, Patrick


Atkins, Robert (South Ribble)
Hamilton, Neil (Tatton)


Baldry, Anthony
Hampson, Dr Keith


Batiste, Spencer
Hanley, Jeremy


Beaumont-Dark, Anthony
Hargreaves, Kenneth


Bellingham, Henry
Harris, David


Berry, Sir Anthony
Havers, Rt Hon Sir Michael


Biffen, Rt Hon John
Hawkins, C. (High Peak)


Boscawen, Hon Robert
Hawkins, Sir Paul (SW N'folk)


Bowden, Gerald (Dulwich)
Hawksley, Warren


Braine, Sir Bernard
Hayes, J.


Brandon-Bravo, Martin
Hayhoe, Barney


Browne, John
Hayward, Robert


Bruce, Malcolm
Heathcoat-Amory, David


Budgen, Nick
Henderson, Barry


Butterfill, John
Hill, James


Clark, Dr Michael (Rochford)
Hirst, Michael


Clark, Sir W. (Croydon S)
Holland, Sir Philip (Gedling)


Clegg, Sir Walter
Holt, Richard


Cockeram, Eric
Hooson, Tom


Colvin, Michael
Howard, Michael


Conway, Derek
Howarth, Alan (Stratf'd-on-A)


Coombs, Simon
Howarth, Gerald (Cannock)


Cranborne, Viscount
Howell, Ralph (N Norfolk)


Crouch, David
Howells, Geraint


Dorrell, Stephen
Hubbard-Miles, Peter


du Cann, Rt Hon Edward
Hunt, David (Wirral)


Evennett, David
Hunter, Andrew


Favell, Anthony
Jessel, Toby


Fenner, Mrs Peggy
Johnson-Smith, Sir Geoffrey


Finsberg, Sir Geoffrey
Jones, Gwilym (Cardiff N)


Fletcher, Alexander
Jones, Robert (W Herts)


Forman, Nigel
Joseph, Rt Hon Sir Keith


Forsythe, Clifford (S Antrim)
Kellett-Bowman, Mrs Elaine


Forth, Eric
Kershaw, Sir Anthony


Fox, Marcus
Key, Robert


Franks, Cecil
King, Roger (B'ham N'field)


Fraser, Peter (Angus East)
King, Rt Hon Tom


Freeman, Roger
Kirkwood, Archibald


Fry, Peter
Knight, Gregory (Derby N)


Galley, Roy
Lamont, Norman


Gardiner, George (Reigate)
Lang, Ian


Garel-Jones, Tristan
Latham, Michael


Goodhart, Sir Philip
Lawler, Geoffrey


Goodlad, Alastair
Lawrence, Ivan


Grant, Sir Anthony
Leigh, Edward (Gainsbor'gh)



lennnox-Boyd, Hon Mark
Roe, Mrs Marion


Lester, Jim
Ross, Wm. (Londonderry)


Lewis, Sir Kenneth (Stamf'd)
Rowe, Andrew


Lightbown, David
Ryder, Richard


Lilley, Peter
Sackville, Hon Thomas


Lloyd, Ian (Havant)
Sainsbury, Hon Timothy


Lloyd, Peter, (Fareham)
Shaw, Giles (Pudsey)


Lord, Michael
helton, William (Streatham)


McCrindle, Robert
Shepherd, Colin (Hereford)


McCurley, Mrs Anna
Shepherd, Richard (Aldridge)


McCusker, Harold
Sims, Roger


MacKay, Andrew (Berkshire)
Skeet, T. H. H.


MacKay, John (Argyll &amp; Bute)
Smith, Sir Dudley (Warwick)


Maclean, David John
Smith, Tim (Beaconsfield)


McNair-Wilson, P. (New F'st)
Smyth, Rev W. M. (Belfast S)


Maginnis, Ken
Soames, Hon Nicholas


Major, John
Spencer, Derek


Malins, Humfrey
Squire, Robin


Maples, John
Stanbrook, Ivor


Marland, Paul
Steen, Anthony


Mather, Carol
Stern, Michael


Maude, Hon Francis
Stevens, Lewis (Nuneaton)


Mawhinney, Dr Brian
Stevens, Martin (Fulham)


Maxwell-Hyslop, Robin
Stewart, Allan (Eastwood)


Meadowcroft, Michael
Stewart, Andrew (Sherwood)


Merchant, Piers
Stewart, Rt Hon D. (W Isles)


Meyer, Sir Anthony
Stewart, Ian (N Hertf'dshire)


Mills, lain (Meriden)
Stokes, John


Mills, Sir Peter (West Devon)
Stradling Thomas, J.


Miscampbell, Norman
Sumberg, David


Moate, Roger
Tapsell, Peter


Molyneaux, Rt Hon James
Taylor, John (Solihull)


Moore, John
Taylor, Teddy (S'end E)


Morris, M. (N'hampton, S)
Tebbit, Rt Hon Norman


Morrison, Hon C. (Devizes)
Temple-Morris, Peter


Morrison, Hon P. (Chester)
Terlezki, Stefan


Moynihan, Hon C.
Thomas, Rt Hon Peter


Mudd, David
Thompson, Donald (Calder V)


Murphy, Christopher
Thompson, Patrick (N'ich N)


Neale, Gerrard
Thurnham, Peter


Needham, Richard
Townend, John (Bridlington)


Nicholls, Patrick
Trotter, Neville


Nicholson, J.
Twinn, Dr Ian


Normanton, Tom
van Straubenzee, Sir W.


Norris, Steven
Vaughan, Sir Gerard


Oppenheim, Philip
Viggers, Peter


Oppenheim, Rt Hon Mrs S.
Wainwright, R.


Osborn, Sir John
Wakeham, Rt Hon John


Ottaway, Richard
Waldegrave, Hon William


Page, Richard (Herts SW)
Walker, Cecil (Belfast N)


Parkinson, Rt Hon Cecil
Waller, Gary


Parris, Matthew
Ward, John


Pawsey, James
Wardle, C. (Bexhill)


Peacock, Mrs Elizabeth
Wells, John (Maidstone)


Penhaligon, David
Wheeler, John


Percival, Rt Hon Sir Ian
Whitfield, John


Pollock, Alexander
Wilson, Gordon


Powell, Rt Hon J. E. (S Down)
Winterton, Mrs Ann


Powell, William (Corby)
Winterton, Nicholas


Powley, John
Wolfson, Mark


Prentice, Rt Hon Reg
Wood, Timothy


Price, Sir David
Woodcock, Michael


Proctor, K. Harvey
Wrigglesworth, Ian


Pym, Rt Hon Francis
Young, Sir George (Acton)


Rees, Rt Hon Peter (Dover)



Rhodes James, Robert
Tellers for the Ayes:


Rhys Williams, Sir Brandon
Mr. Archie Hamilton and


Ridsdale, Sir Julian
Mr. Douglas Hogg.


Roberts, Wyn (Conwy)



NOES


Abse, Leo
Barron, Kevin


Adams, Allen (Paisley N)
Beckett, Mrs Margaret


Anderson, Donald
Bell, Stuart


Archer, Rt Hon Peter
Benn, Tony


Ashley, Rt Hon Jack
Bennett, A. (Dent'n Red'sh)


Atkinson, N. (Tottenham)
Bermingham, Gerald


Bagier, Gordon A. T.
Bidwell, Sydney


Banks, Tony (Newham NW)
Blair, Anthony


Barnett, Guy
Boyes, Roland






Bray, Dr Jeremy
Lamond, James


Brown, R. (N'c'tle-u-Tyne N)
Leadbitter, Ted


Caborn, Richard
Leighton, Ronald


Callaghan, Jim (Heyw'd &amp; M)
Lewis, Ron (Carlisle)


Campbell-Savours, Dale
Litherland, Robert


Carter-Jones, Lewis
Lofthouse, Geoffrey


Clark, Dr David (S Shields)
Loyden, Edward


Clay, Robert
McDonald, Dr Oonagh


Cocks, Rt Hon M. (Bristol S.)
McGuire, Michael


Cohen, Harry
McKay, Allen (Penistone)


Coleman, Donald
McNamara, Kevin


Conlan, Bernard
McWilliam, John


Cook, Frank (Stockton North)
Madden, Max


Corbett, Robin
Marshall, David (Shettleston)


Corbyn, Jeremy
Maynard, Miss Joan


Cowans, Harry
Michie, William


Cox, Thomas (Tooting)
Mikardo, Ian


Craigen, J. M.
Milian, Rt Hon Bruce


Crowther, Stan
Miller, Dr M. S. (E Kilbride)


Cunliffe, Lawrence
Mitchell, Austin (G't Grimsby)


Dalyell, Tam
Morris, Rt Hon A. (W'shawe)


Davies, Ronald (Caerphilly)
Morris, Rt Hon J. (Aberavon)


Davis, Terry (B'ham, H'ge H'!)
O'Brien, William


Dixon, Donald
Park, George


Dobson, Frank
Patchett, Terry


Dormand, Jack
Pike, Peter


Dubs, Alfred
Powell, Raymond (Ogmore)


Duffy, A. E. P.
Randall, Stuart


Dunwoody, Hon Mrs G.
Redmond, M.


Eadie, Alex
Rees, Rt Hon M. (Leeds S)


Evans, John (St. Helens N)
Robertson, George


Ewing, Harry
Robinson, G. (Coventry NW)


Fatchett, Derek
Rooker, J. W.


Faulds, Andrew
Sedgemore, Brian


Field, Frank (Birkenhead)
Sheldon, Rt Hon R.


Fisher, Mark
Short, Ms Clare (Ladywood)


Flannery, Martin
Short, Mrs R.(W'hampt'n NE


Foster, Derek
Silkin, Rt Hon J.


Fraser, J. (Norwood)
Skinner, Dennis


Freeson, Rt Hon Reginald
Smith, C.(lsl'ton S &amp; F'bury)


Garrett, W. E.
Snape, Peter


George, Bruce
Stott, Roger


God man, Dr Norman
Strang, Gavin


Gould, Bryan
Thomas, Dr R. (Carmarthen)


Hamilton, W. W. (Central Fife)
Tinn, James


Hardy, Peter
Wardell, Gareth (Gower)


Hart, Rt Hon Dame Judit
Weetch, Ken


Hattersley, Rt Hon Roy
Welsh, Michael


Hogg, N. (C'nauld &amp; Kilsyth)
Wigley, Dafydd


Hoyle, Douglas
Winnick, David


Hughes, Dr. Mark (Durham)
Woodall, Alec


Hughes, Robert (Aberdeen N)
Young, David (Bolton SE)


Hughes, Roy (Newport East)



Hughes, Sean (Knowsley S)
Tellers for the Noes:


Janner, Hon Greville
Mr. Frank Haynes and


Kaufman, Rt Hon Gerald
Mr. James Hamilton.

Question accordingly agreed to.

Clause 18 ordered to stand part of the Bill.

Clause 20

CORPORATION TAX: OTHER RATES AND FRACTIONS

Mr. Hattersley: I beg to move amendment No. 35, in page 12, line 6, leave out from 'year' to end of line 17 and add
'1983 be 40 per cent. and for the financial year 1984 be 38 per cent. for the financial year 1985 be 31 per cent. and for the financial year 1986 and subsequent years be 27 per cent.'.
The amendment has been proposed in the hope of ending an injustice to co-operative societies, housing associations and building societies, which would have been evident if the clause were passed unamended.
Due to the lateness of the hour and the amount of ground that the Committee must cover, I shall describe the

problem in terms of the co-operative societies. Hon. Members who are familiar with such matters will know that the problems that I describe are common to the other two institutions that — dare I say it? — hover between being commercial organisations and something akin to friendly societies.
Should clause 20 become law unamended these societies would lose a distinctive status, which they were intentionally afforded to give recognition to their special position in the economy. Co-operative societies form a substantial part of the economy, certainly a large part of the retail sector, holding 6 per cent. of the total with an annual turnover of £4.2 million and 97,000 employees, putting aside their special interest in and control over the large Co-operative Wholesale Society.
The co-operative societies hold a numerical position of strength in the economy as well as possessing a distinction that makes them different in many ways from their commercial competitors. Like all such institutions, they have the need and the duty to run a viable enterprise, but they take on other obligations arising from the fact that their customers are also their shareholders.
Because of that, first by tradition and then according to the law, practice and proceedings of the Registrar of Friendly Societies, some method of organising capital and tax thereof apply to the co-operative societies but do not apply to companies competing with them in the same market. Their share capital does not appreciate with the market. Dividends do not arise from their share capital. There are no scrip issues or bonus shares to increase an individual holding. Each society's rule book defines the rate of share interest that is paid to members, who are the shareholders. Now, both tradition and the Registrar of Friendly Societies enforce the practice whereby the rate of interest paid on share capital is adequate merely to offer a small return, and in no way offers an excessive reward or forms the basis of a capital gain.
10 pm
Because of that and the other obligations that the cooperative societies have always accepted, the House of Commons has traditionally believed that their liability for corporation tax should be different from that of the rest of the retail trade. That was acknowledged in 1971, when the Select Committee's report on corporation tax suggested that a special rate was necessary for co-operative societies. Indeed, they paid a special rate that was appreciably below what was given to other companies that were apparently similar.
Now other companies are to have a reduction in their rate, but they will regard that reduction as in some way a compensation for penalties that the Budget imposes on them—

Mr. Moore: indicated dissent.

Mr. Hattersley: The Financial Secretary shakes his head. The previous debate was concerned with the fact that this was a package—the reduction in corporation tax had to be balanced against other alterations, such as the change in stock relief. The hon. Gentleman must tell us whether the Government have changed their policies since the previous debate. If they have not, I shall repeat my point. Co-operative societies will not enjoy the same benefits as companies, shops and retail outlets that appear to be their direct competitors. A package applies to those competitors, in that the penalties that I have described


balance a reduction in their obligations on corporation tax. However, the co-operative societies are already on a beneficial level of corporation tax. Unless that beneficial level is reduced, they will lose their previous traditional advantage, and begin to pay the other penalties exacted from private companies in the retail trade.
In the amendment, which I move with brevity, out of respect for the Committee, perhaps not doing justice to the cause that I argue, we simply suggest that the co-operative retail societies should be returned to the special position that their nature and tradition previously gave them. However, I confess, with a frankness that I hope might be endearing, that possibly the figures in the amendment are not the percentages that would return the co-operative societies to their traditional advantage. They may be miscalculated by 1 or 2 per cent., but the issue that we are debating is whether the co-operative societies should have that advantage.
Were the Financial Secretary to say that he agreed with the principle but rejected the figures, we would accept that with joyous acclaim, as well as his assurance that he would improve on our amendment on Report. The principle is what we are after, not the decimal point. The principle is that, because of their specific and special financial organisation and nature, the co-operative societies have always had a beneficial position. It is removed in the Budget, and we believe that it should be replaced.

Sir William Clark: I should like to speak about the building societies. I declare a vested interest in that I am a vice-president of the Building Societies Association. I assure the Committee that it is purely an honorary position.
I agree with the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). My hon. Friend the Financial Secretary will recollect that in 1972 we changed the basis of corporation tax to what was known as the imputation system. That system, with advance corporation tax and the distribution possibilities of ordinary companies, gave them an advantage. However, as the constitutions of institutions such as the building societies and, as the right hon. Gentleman said, the co-operative societies gave them no right to distribute profits, the imputation system acted against them. Because of this Government of the day introduced a lower rate of tax than the 50 per cent. corporation tax. The tax for building societies was set at 40 per cent.
I am speaking on these amendments because when corporation tax comes down from 50 per cent. to 45 per cent. or 40 per cent., if one accepts the principle of the differential between imputation, where one can and cannot distribute, there should be a lower rate for building societies, and presumably co-operative societies, so that we still maintain the justice effected in 1972.
In 1972, the Finance Bill was introduced by a Conservative Chancellor and it was seen that equity should be carried through. I hope that my hon. Friend will either now — if he can say it now, all well and good—or between now and Report, say that when corporation tax comes down from 50 per cent. to 40 per cent. the differential, whether it is 31 per cent. or something else—I shall not argue the percentage—will be between the top rate of corporation tax and the rate that building societies pay. If it is not, there will be an injustice because building societies and co-operative societies do not have the right to distribute their profits.

Mr. Moore: I did not seek to question the figures given by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) because I took him on his frank reflection on his own pesonality and assumed that he would want me to address myself to the substance. I shall try to be brief, but it is an issue about which there is some confusion, as my hon. Friend the Member for Croydon, South (Sir W. Clark) said.
My first reaction when I saw the amendment was one of astonishment. In the face of a Budget making a number of radical reforms to the corporation tax regime, the Opposition have picked on this point. The right hon. Member for Sparkbrook has stated clearly that the purpose of the amendment would be to prescribe special rates of corporation tax on the profits of certain industrial and provident societies, housing associations and building societies, which would broadly preserve under the new corporation tax regime the relative advantage that the Opposition see them as having had in the past.
When I thought about it a little further, I realised that this was not untypical—I should perhaps not say this so clearly, as my hon. Friend the Member for Croydon, South has spoken in support of the amendment—of what I would call the rigid fiscal conservatism of the Opposition in these matters. With some care, I sought to address myself to the amendment, which is what one would want Ministers to do in responding to addresses, as well as listening carefully to the debate.
Presumably, the Opposition want to put a preservation order on the tax system, with all the ossification of the past, whatever today's needs. Even allowing for the fact that the Opposition regard this amendment as important—I accept that—they are basing their case, as my hon. Friend did, on a fundamental misconception. There is no theoretical reason why industrial and provident societies and building societies should have a relative advantage over other companies. The 40 per cent. rate was not introduced for that purpose but as a ceiling on the changeover to the imputation system because, as my hon. Friend rightly said, such societies do not pay distribution and so could not benefit from the change. The 50 per cent. rate was introduced as a ceiling to stop the societies from being disadvantaged on the change to the new system.
The Opposition may have failed to appreciate that the purpose of the imputation system, as my hon. Friend said, was to alleviate the double taxation of distributed profits, not to alter the basis of the taxation of the companies themselves. The industrial and provident societies cannot distribute their profits and so could not benefit from the change over to the imputation system. However, the 40 per cent. rate was not introduced to give them a competitive advantage but to prevent them from being disadvantaged as a result of the change. Before the imputation system, they were taxed on the same basis as other companies. The practice makes the opposition to this even more difficult to comprehend because, as it happens, most societies have had no differential from comparable companies—in other words, companies entitled to the special rate of tax on profits of small companies.
The lack of differential applies to over 99 per cent. of industrial and provident societies, and to approximately 60 per cent. of all building societies. All these have been paying at the same rate of tax as small companies, currently 38 per cent., because their profits are below £100,000. When we took their rate of tax down from 40 per cent. last year, I do not recall any objections having


been made to the lack of differential about which the hon. Member for Birmingham, Perry Barr (Mr. Rooker) was concerned when he raised the matter on Second Reading. He admitted, as he put it, that the co-operatives have been rather quiet on the subject, perhaps because they realise the advantages that they will derive under our proposals from their being taxed like any other company.
Therefore, the argument of the Opposition essentially must be that a few societies, rather less than 30 industrial and provident societies, and perhaps over 50 building societies, all by definition large, merit for some reason a lower rate of tax than big companies generally because of their nature when they are acting as equals in the market place competing for funds and business. If that is the proposition, the Government do not accept it. Our policy is to offer equality of treatment to all companies, and to remove unnecessary distortions. If one of the societies is large, it should pay at the same rate of tax as large companies generally. This is what is being done in clause 20, in such a way as not to disadvantage any of the groups covered by the amendment. For the large societies, which, as I have said, are less than 1 per cent. of all industrial and provident societies, and 40 per cent. of building societies, the rate of tax, under my right hon. Friend's proposal, will fall eventually from 40 per cent. to 35 per cent., while the vast majority, over 99 per cent. of industrial and provident societies, and the smaller building societies, will see a fall from 38 per cent. to 30 per cent. immediately. A majority of industrial and provident societies will benefit immediately under the Finance Bill from the reduction in the small companies' rate, the remainder will benefit when the rate falls to 35 per cent., but all will benefit from the healthier climate for enterprise that the Bill creates.
For too long we have had a system of high nominal rates of tax, and an extensive and complex system of allowances and reliefs which has placed a premium on investment for tax efficiency rather than for market reasons. All companies, large and small, will be able, we hope, to take their investment decisions free from the earlier distortions. The reductions in the tax rates provide the best possible incentive for investment in profitable enterprise.

Mr. Hattersley: The Financial Secretary began by saying that he was astonished by the amendment. I am always rather sceptical about astonishment which is read from a typewritten script. The two issues to which I endeavoured to draw his attention are issues to which he did not turn his mind. First, he says that, when the cooperative societies and others were given their differential and advantageous rate, it was to avoid their being penalised by a tax change. I was arguing for that tonight, as, I think, was my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker). Certain penalities in the Budget are supposed to be compensated for, in the case of other firms, by the reduction in corporation tax. The penalities will be imposd on these institutions, but they will not receive the compensation. They are disadvantaged by comparison with the position before the introduction of the Budget. The second point about which the Financial Secretary said not a word is that there are limitations on the use of profit in these institutions which are not placed on the use of profit in apparently

competitive industries and companies which are limited liability companies, and are not governed by the Registrar or Friendly Societies.
I do not flatter myself that we will persuade the Financial Secretary or the Government to change their mind. We have heard the paragraphs of orthodoxy about competition so that firms performing similar functions must be taxed on an identical base. The Financial Secretary must stick to his dogmatism, and we must divide the House against it.

Question put, That the amendment be made:—

The Committee divided: Ayes 126, Noes 224.

Division No. 266]
[10.13 pm


AYES


Adams, Allen (Paisley N)
Harman, Ms Harriet


Anderson, Donald
Hart, Rt Hon Dame Judith


Archer, Rt Hon Peter
Hattersley, Rt Hon Roy


Ashley, Rt Hon Jack
Hogg, N. (C'nauld &amp; Kilsyth)


Atkinson, N. (Tottenham
Holland, Stuart (Vauxhall)


Bagier, Gordon A. T.
Hoyle, Douglas


Banks, Tony (Newham NW)
Hughes, Dr. Mark (Durham)


Barron, Kevin
Hughes, Robert (Aberdeen N)


Beckett, Mrs Margaret
Hughes, Sean (Knowsley S)


Bell, Stuart
Janner, Hon Greville


Benn, Tony
Kaufman, Rt Hon Gerald


Bennett, A. (Dent'n &amp; Red'sh)
Lamond, James


Bermingham, Gerald
Leadbitter, Ted


Bidwell, Sydney
Leighton, Ronald


Blair, Anthony
Lewis, Ron (Carlisle)


Boyes, Roland
Litherland, Robert


Bray, Dr Jeremy
Lofthouse, Geoffrey


Brown, R. (N'c'tle-u-Tyne N)
Loyden, Edward


Caborn, Richard
McCartney, Hugh


Callaghan, Jim (Heyw'd &amp; M)
McDonald, Dr Oonagh


Campbell-Savours, Dale
McGuire, Michael


Clark, Dr David (S Shields)
McNamara, Kevin


Clay, Robert
McWilliam, John


Cocks, Rt Hon M. (Bristol S.)
Madden, Max


Cohen, Harry
Marshall, David (Shettleston)


Coleman, Donald
Maynard, Miss Joan


Conlan, Bernard
Michie, William


Cook, Frank (Stockton North)
Mikardo, Ian


Corbett, Robin
Milian, Rt Hon Bruce


Corbyn, Jeremy
Miller, Dr M. S. (E Kilbride)


Cowans, Harry
Mitchell, Austin (G't Grimsby)


Cox, Thomas (Tooting)
Morris, Rt Hon A. (W'shawe)


Craigen, J. M.
Morris, Rt Hon J. (Aberavon)


Crowther, Stan
O'Brien, William


Cunliffe, Lawrence
Park, George


Dalyell, Tam
Patchett, Terry


Davies, Ronald (Caerphilly)
Pike, Peter


Davis, Terry (B'ham, H'ge H'I)
Powell, Raymond (Ogmore)


Dixon, Donald
Randall, Stuart


Dobson, Frank
Redmond, M.


Dormand, Jack
Rees, Rt Hon M. (Leeds S)


Dubs, Alfred
Richardson, Ms Jo


Duffy, A. E. P.
Robertson, George


Dunwoody, Hon Mrs G.
Robinson, G. (Coventry NW)


Eadie, Alex
Rooker, J. W.


Evans, John (St. Helens N)
Sedgemore, Brian


Ewing, Harry
Sheldon, Rt Hon R.


Fatchett, Derek
Short, Ms Clare (Ladywood)


Faulds, Andrew
Short, Mrs R.(W'hampt'n NE)


Field, Frank (Birkenhead)
Skinner, Dennis


Fisher, Mark
Smith, C.(Isl'ton S &amp; F'bury)


Flannery, Martin
Snape, Peter


Foster, Derek
Soley, Clive


Fraser, J. (Norwood)
Stott, Roger


Freeson, Rt Hon Reginald
Strang, Gavin


Garrett, W. E.
Thomas, Dr R. (Carmarthen)


George, Bruce
Tinn, James


Godman, Dr Norman
Wardell, Gareth (Gower)


Gould, Bryan
Weetch, Ken


Hamilton, James (M'well N)
Welsh, Michael


Hamilton, W. W. (Central Fife)
Wigley, Dafydd


Hardy, Peter
Winnick, David






Woodall, Alec
Tellers for the Ayes:


Young, David (Bolton SE)
Mr. Frank Haynes and



Mr. Allen McKay.


NOES


Ancram, Michael
Howarth, Alan (Stratf'd-on-A)


Ashby, David
Howarth, Gerald (Cannock)


Ashdown, Paddy
Howell, Ralph (N Norfolk)


Atkins, Robert (South Ribble)
Howells, Geraint


Baldry, Anthony
Hubbard-Miles, Peter


Batiste, Spencer
Hunter, Andrew


Beaumont-Dark, Anthony
Jessel, Toby


Bellingham, Henry
Johnson-Smith, Sir Geoffrey


Berry, Sir Anthony
Jones, Gwilym (Cardiff N)


Biffen, Rt Hon John
Jones, Robert (W Herts)


Boscawen, Hon Robert
Joseph, Rt Hon Sir Keith


Bowden, Gerald (Dulwich)
Kellett-Bowman, Mrs Elaine


Braine. Sir Bernard
Key, Robert


Brandon-Bravo, Martin
King, Roger (B'ham N'field)


Browne, John
Kirkwood, Archibald


Bruce, Malcolm
Knight, Gregory (Derby N)


Budgen, Nick
Lamont, Norman


Butterfill, John
Lang, Ian


Clark, Dr Michael (Rochford)
Latham, Michael


Clark, Sir W. (Croydon S)
Lawler, Geoffrey


Clegg, Sir Walter
Lawrence, Ivan


Cockeram, Eric
Leigh, Edward (Gainsbor'gh)


Colvin, Michael
Lennox-Boyd, Hon


Conway, Derek
Mark Lester, Jim


Coombs, Simon
Lewis, Sir Kenneth (Stamf'd)


Cranborne, Viscount
Lightbown, David


Crouch, David
Lilley, Peter


Dorrell, Stephen
Lloyd, Ian (Havant)


du Cann, Rt Hon Edward
Lloyd, Peter, (Fareham)


Emery. Sir Peter
Lord, Michael


Evennett, David
McCrindle, Robert


Favell, Anthony
McCurley, Mrs Anna


Finsberg, Sir Geoffrey
McCusker, Harold


Fletcher, Alexander
MacKay, Andrew (Berkshire)


Forman, Nigel
MacKay, John (Argyll &amp; Bute)


Forsythe, Clifford (S Antrim)
Maclean, David John


Forth, Eric
McNair-Wilson, P. (New F'st)


Fox, Marcus
Maginnis, Ken


Franks, Cecil
Major, John


Fraser, Peter (Angus East)
Malins, Humfrey


Freeman, Roger
Maples, John


Fry, Peter
Marland, Paul


Galley. Roy
Mather,Carol


Gardiner, George (Reigate)
Maude, Hon Francis


Glyn, Dr Alan
Mawhinney, Dr Brian


Goodhart, Sir Philip
Maxwell-Hyslop, Robin


Goodhart, Alastairr
Meadowcroft, Michael


Grant, Sir Anthony
Merchant, Piers


Greenway, Harry
Meyer, Sir Anthony


Gregory, Conal
Mills, lain (Meriden)


Griffiths, E. (B'y St Edm'ds)
Mills, Sir Peter (West Devon)


Griffiths, Peter (Portsm'th N)
Miscampbell, Norman


Ground, Patrick
Moate, Roger


Hamilton, Hon A. (Epsom)
Molyneaux, Rt Hon James


Hamilton, Neil (Tatton)
Moore, John


Hampson, Dr Keith
Morris, M. (N'hampton, S)


Hanley, Jeremy
Morrison, Hon C. (Devizes)


Hargreaves, Kenneth
Morrison, Hon P. (Chester)


Harris, David
Mudd, David


Havers, Rt Hon Sir Michael
Murphy, Christopher


Hawkins, C. (High Peak)
Neale, Gerrard


Hawkins, Sir Paul (SW N'folk)
Needham, Richard


Hawksley, Warren
Nicholls, Patrick


Hayes, J.
Nicholson, J.


Hayhoe, Barney
Normanton, Tom


Hayward, Robert
Norris, Steven


Heathcoat-Amory, David
Oppenheim, Philip


Henderson, Barry
Oppenheim, Rt Hon Mrs S.


Hill, James
Osborn, Sir John


Hirst, Michael
Ottaway, Richard


Hogg, Hon Douglas (Gr'th'm)
Page, Richard (Herts SW)


Holland, Sir Philip (Gedling)
Parkinson, Rt Hon Cecil


Holt, Richard
Parris, Matthew


Hooson, Tom
Pawsey, James


Howard, Michael
Peacock, Mrs Elizabeth



Penhaligon, David
Stokes, John


Percival, Rt Hon Sir Ian
Stradling Thomas, J.


Pollock, Alexander
Sumberg, David


Powell, Rt Hon J. E. (S Down)
Tapsell, Peter


Powell, William (Corby)
Taylor, John (Solihull)


Powley, John
Taylor, Teddy (S'end E)


Prentice, Rt Hon Reg
Tebbit, Rt Hon Norman


Proctor, K. Harvey
Temple-Morris, Peter


Rees, Rt Hon Peter (Dover)
Terlezki, Stefan


Rhodes James, Robert
Thomas, Rt Hon Peter


Rhys Williams, Sir Brandon
Thompson, Donald (Calder V)


Ridsdale, Sir Julian
Thompson, Patrick (N'ich N)


Roberts, Wyn (Convey)
Thurnham, Peter


Roe, Mrs Marion
Townend, John (Bridlington)


Ross, Wm. (Londonderry)
Trotter, Neville


Rowe, Andrew
Twinn, Dr Ian


Ryder, Richard
van Straubenzee, Sir W.


Sackville, Hon Thomas
Vaughan, Sir Gerard


Sainsbury, Hon Timothy
Viggers, Peter


Shaw, Giles (Pudsey)
Wainwright, R.


Shelton, William (Streatham)
Wakeham, Rt Hon John


Shepherd, Colin (Hereford)
Walker, Cecil (Belfast N)


Shepherd, Richard (Aldridge)
Waller, Gary


Sims, Roger
Ward, John


Skeet, T. H. H.
Wardle, C. (Bexhill)


Smith, Sir Dudley (Warwick)
Wells, John (Maidstone)


Smith, Tim (Beaconsfield)
Wheeler, John


Smyth, Rev W. M. (Belfast S)
Whitfield, John


Soames, Hon Nicholas
Wilson, Gordon


Spencer, Derek
Winterton, Mrs Ann


Squire, Robin
Winterton, Nicholas


Stanbrook, Ivor
Wolfson, Mark


Steen, Anthony
Wood, Timothy


Stern, Michael
Woodcock, Michael


Stevens, Lewis (Nuneaton)
Young, Sir George (Acton)


Stevens, Martin (Fulham)



Stewart, Allan (Eastwood)
Tellers for the Noes:


Stewart, Andrew (Sherwood)
Mr. Tristan Garel-Jones and


Stewart, Ian (N Hertf'dshire)
Mr. David Hunt.

Question accordingly negatived.

Clause 20 ordered to stand part of the Bill.

Clause 57

WITHDRAWAL OF INITIAL AND FIRST-YEAR ALLOW ANCES

Mr. Hattersley: I beg to move amendment No. 36, in page 42, line 32, at end insert—
'(2) Subsection (1) above shall not apply to allowances against Schedule D case I and Schedule D case II of income tax.'.
I shall be excessively brief in this, my last test this evening of the Government's rigidity or lack of imagination and flexibility. The amendment concerns the so-called package by which certain benefits are provided for industry at the expense of certain penalties.
By now, the Committee will recall that capital allowances will be phased out for both corporation taxpayers and schedule D income taxpayers—the self-employed. While some of the effects on corporation taxpayers will be offset by the fall in corporation tax to a rate of 35 per cent. there will be no offsetting benefit for schedule D taxpayers. Very often, they are small employers — small business men. The amendment proposes to retain capital allowances for schedule D income taxpayers so that they will not lose the benefits without gaining any of the advantages.
If we are talking about a policy that is fair and square between competitive sources, to have one section of the economy that receives none of the new benefits but has to suffer all the new penalties is wholly unreasonable by any standards. The standard against which I want to test that


this evening is whether it provides the help that the Government always claim they want to provide for the small business man.
If the Government choose to resist the amendment—it is extraordinary how a hush falls over the Committee at the mention of small business men—the Minister must tell us that the Government propose to do something to compensate for the added burden that will fall on some business men in the absence of any of the benefits that they would receive if they were corporation taxpayers.

Mr. Moore: The right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) moved the amendment with a degree of charm and brevity that I wish I could match. Of course, concealed within it is a great deal, to which I must respond as briefly as possible.
The amendment seeks to exclude the self-employed from the proposed changes. I recognise the right hon. Gentleman's point. For unincorporated businesses there will be no direct benefit from the corporation tax changes. But that is ignoring the effects of the other changes in the package of measures — the substantial increase in income tax thresholds, the abolition of the national insurance surcharge, the abolition of the investment income surcharge—especially important on retirement—and the capital taxation changes.
10.30 pm
Thus, in the first two years, 1984–85 and 1985–86, unincorporated businesses as a whole will gain. They will get the benefit of the abolition of the NIS, and the phasing out of initial and first year allowances will not have taken full effect. Taking the two years together, the net effect of these changes will be a gain to the unincorporated sector of about £60 million. Thereafter—and I recognise the point that the right hon. Gentleman makes—the effect will tend to move the other way because the loss from the abolition of stock relief and capital allowances will exceed the continuing gain from the abolition of NIS.
In the longer run, the losses from the changes on capital allowances will fall as the writing down allowances build up, and the unincorporated sector will gain substantially from the income tax changes in the Budget. It would be wrong to leave the income tax changes out of account. They are the principal means by which the unincorporated sector will benefit.
Of the 1·5 million self-employed traders, 170,000 are higher rate taxpayers and 55,000 pay investment income surcharge. The total gain accruing to the 1·5 million self-employed in 1984–85 from the Budget will be £275 million, compared with no change in the personal allowances, and £160 million compared with indexation. There will also be a small gain from the CTT proposals.
Taking the income tax and other changes together, the unincorporated sector will, therefore, get a substantial gain from the Budget up to and including 1986–87 and will not be far from balance in 1987–88. Furthermore, the self-employed can look forward to further improvements in income tax.
In his Budget statement, the Chancellor said that, while he thought it right to concentrate this year on business taxation, the burden of income tax was still too heavy and that he intended to carry forward in the lifetime of the present Parliament the progress already made in reducing the burden of personal taxation.
Despite all this, we have heard much of late from Opposition Members about the problems of the self-employed trader and it has been suggested that he has been overlooked or ignored. Nothing could be further from the truth. Since 1979, we have devoted more time and effort than any previous Government to helping the self-employed to set up new businesses and to expand. The reduction in the small companies' rate of corporation tax to 30 per cent. will provide a strong incentive for a number of the self-employed to incorporate. How to carry on a business is for its proprietors, not the Government, to decide. Removing distortions in the tax system creates the best basis for achieving that.
I realise that some businesses traditionally do not incorporate — farmers, for example — and that some, such as accountants and solicitors, are not permitted to incorporate because of professional and ethical rules. However, professional bodies are allowed to arrange for some of their activities to be handled by service companies of which the professional firm's partners are directors, and this facility is widely used.
Not only small tradesmen would gain from the amendment. The proposal to shelter the unincorporated from the changes in the capital allowances would benefit farmers, lawyers and many other professional and business people who pay income tax rather than corporation tax on their profits. Many of these people will inevitably be high earners. Yet at the same time Opposition Members complain about increases in the higher rate thresholds.
Having outlined some of the ways in which the unincorporated have benefited and will continue to benefit, I urge the Committee to reject the amendment.

Mr. Hattersley: The Financial Secretary said that the Committee had heard much in the last two days from Opposition Members about the self-employed. We have not heard a word from the Government Benches about them, except from the Front Bench, defending the Government's position. Where are those Tory Back Benchers of old who could always be relied upon to rally to the cause of the small businessmen and the self-employed? On the evidence of yesterday and today, they are not here.
Where are the accounts that we normally hear of the opinions of small businessmen as represented to the Government by the Small Businesses Bureau? Apart from the rather complacent view of their prospects given by the Financial Secretary, it has been left to Opposition Members to speak for them tonight; and my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) spoke for them in another context yesterday.
The Financial Secretary missed the point in two ways. First, we have a new Government technique of calculating the benefits provided to industry over varying periods according to the convenience of choosing two or four years or an indefinite period. In an earlier debate I was urged to understand that if one calculated the balance between corporation tax and capital allowances over four years, all would turn out well in the end. The Committee is now being told that things will turn out all right over two years. No doubt something will happen in six, eight or 10 years' time, but I do not think that that theoretical view of the economy will commend itself to the self-employed. I do not believe that they will be impressed by the Financial Secretary urging them to remember that they will receive other benefits from the Budget. They will benefit from the


abolition of the national insurance surcharge but so will ICI and other massive companies, which will benefit also from the other relaxations.
The self-employed businessman will object especially to the Financial Secretary saying that he or she will gain from the income tax changes as an earner. One of the great complaints of the self-employed about successive Governments is over their inability to realise that they have two roles. Their first role is that of a worker who receives a wage and the second is that they are the owners of businesses. They argue that the two roles have to be separated and distinguished. That is something that the Financial Secretary has singularly failed to do. He has failed the self-employed and ignored the interests of small businesses, and the Opposition will rally to their defence by dividing the Committee.

Question put, That the amendment be made;—

The Committee divided: Ayes 109, Noes 215.

Division No. 267]
[10.35 pm


AYES


Adams, Allen (Paisley N)
Hattersley, Rt Hon Roy


Anderson, Donald
Haynes, Frank


Archer, Rt Hon Peter
Hogg, N. (C'nauld &amp; Kilsyth)


Atkinson, N. (Tottenham)
Holland, Stuart (Vauxhall)


Bagier. Gordon A. T.
Hoyle, Douglas


Barron, Kevin
Hughes, Dr. Mark (Durham)


Beckett, Mrs Margaret
Hughes, Robert (Aberdeen N)


Bell, Stuart
Hughes, Sean (Knowsley S)


Benn, Tony
Janner, Hon Greville


Bennett, A. (Dent'n &amp; Red'sh)
Kaufman, Rt Hon Gerald


Bermingham, Gerald
Lamond, James


Blair, Anthony
Leadbitter, Ted


Boyes, Roland
Lewis, Ron (Carlisle)


Bray, Dr Jeremy
Litherland, Robert


Brown, R. (N'c'tle-u-Tyne N)
Lofthouse, Geoffrey


Caborn, Richard
Loyden, Edward


Callaghan, Jim (Heyw'd &amp; M)
McCartney, Hugh


Clark, Dr David (S Shields)
McDonald, Dr Oonagh


Clay, Robert
McGuire, Michael


Cocks, Rt Hon M. (Bristol S.)
McNamara, Kevin


Cohen, Harry
McWilliam, John


Cook, Frank (Stockton North)
Madden, Max


Corbett, Robin
Marshall, David (Shettleston)


Corbyn, Jeremy
Michie, William


Cowans, Harry
Millan, Rt Hon Bruce


Craigen, J. M.
Miller, Dr M. S. (E Kilbride)


Crowther, Stan
Mitchell, Austin (G't Grimsby)


Cunliffe, Lawrence
Morris, Rt Hon J. (Aberavon)


Dalyell, Tam
O'Brien, William


Davies, Ronald (Caerphilly)
Park, George


Davis, Terry (B'ham, H'ge H'I)
Patchett, Terry


Dixon, Donald
Pike, Peter


Dobson, Frank
Powell, Raymond (Ogmore)


Dormand, Jack
Randall, Stuart


Dubs, Alfred
Redmond, M.


Duffy, A. E. P.
Richardson, Ms Jo


Eadie, Alex
Robertson, George


Evans, John (St. Helens N)
Rooker, J. W.


Ewing, Harry
Sedgemore, Brian


Fatchett, Derek
Sheldon, Rt Hon R.


Faulds, Andrew
Short, Ms Clare (Ladywood)


Fisher, Mark
Short, Mrs R.(W'hampt'n NE)


Flannery, Martin
Smith, C.(lsl'ton S &amp; F'bury)


Foster, Derek
Snape, Peter


Fraser, J. (Norwood)
Soley, Clive


Freeson, Rt Hon Reginald
Strang, Gavin


Garrett, W. E.
Thomas, Dr R. (Carmarthen)


George, Bruce
Tinn, James


Godman, Dr Norman
Wardell, Gareth (Gower)


Gould, Bryan
Welsh, Michael


Hamilton, W. W. (Central Fife)
Wigley, Dafydd


Hardy, Peter
Wilson, Gordon


Harman, Ms Harriet
Winnick, David


Hart, Rt Hon Dame Judith
Woodall, Alec





Young, David (Bolton SE)
Mr. James Hamilton and



Mr. Allen McKay.


Tellers for the Ayes:



NOES


Aitken, Jonathan
Hughes, Simon (Southwark)


Ancram, Michael
Hunt, David (Wirral)


Ashby, David
Hunter, Andrew


Ashdown, Paddy
Jessel, Toby


Atkins, Robert (South Ribble)
Johnson-Smith, Sir Geoffrey


Baldry, Anthony
Jones, Gwilym (Cardiff N)


Batiste, Spencer
Jones, Robert (W Herts)


Beaumont-Dark, Anthony
Joseph, Rt Hon Sir Keith


Bellingham, Henry
Kellett-Bowman, Mrs Elaine


Benyon, William
Key, Robert


Berry, Sir Anthony
King, Roger (B'ham N'field)


Biffen, Rt Hon John
Kirkwood, Archibald


Boscawen, Hon Robert
Knight, Gregory (Derby N)


Bowden, Gerald (Dulwich)
Lamont, Norman


Braine, Sir Bernard
Latham, Michael


Brandon-Bravo, Martin
Lawler, Geoffrey


Bruce, Malcolm
Leigh, Edward (Gainsbor'gh)


Budgen, Nick
Lennox-Boyd, Hon Mark


Butterfill, John
Lester, Jim


Clark, Dr Michael (Rochford)
Lewis, Sir Kenneth (Stamf'd)


Clegg, Sir Walter
Lightbown, David


Cockeram, Eric
Lilley, Peter


Colvin, Michael
Lloyd, Peter, (Fareham)


Conway, Derek
Lord, Michael


Cranborne, Viscount
McCrindle, Robert


Crouch, David
McCurley, Mrs Anna


Dorrell, Stephen
McCusker, Harold


Evennett, David
MacKay, Andrew (Berkshire)


Favell, Anthony
MacKay, John (Argyll &amp; Bute)


Finsberg, Sir Geoffrey
Maclean, David John


Fletcher, Alexander
McNair-Wilson, P. (New F'st)


Forman, Nigel
Maginnis, Ken


Forsythe, Clifford (S Antrim)
Malins, Humfrey


Forth, Eric
Maples, John


Fox, Marcus
Marland, Paul


Franks, Cecil
Mather, Carol


Fraser, Peter (Angus East)
Maude, Hon Francis


Freeman, Roger
Mawhinney, Dr Brian


Galley, Roy
Maxwell-Hyslop, Robin


Gardiner, George (Reigate)
Meadowcroft, Michael


Garel-Jones, Tristan
Mellor, David


Glyn, Dr Alan
Merchant, Piers


Goodlad, Alastair
Meyer, Sir Anthony


Grant, Sir Anthony
Mills, lain (Meriden)


Greenway, Harry
Mills, Sir Peter (West Devon)


Gregory, Conal
Miscampbell, Norman


Griffiths, E. (B'y St Edm'ds)
Moate, Roger


Griffiths, Peter (Portsm'th N)
Molyneaux, Rt Hon James


Ground, Patrick
Moore, John


Hamilton, Hon A. (Epsom)
Morrison, Hon C. (Devizes)


Hamilton, Neil (Tatton)
Morrison, Hon P. (Chester)


Hampson, Dr Keith
Moynihan, Hon C.


Hanley, Jeremy
Mudd, David


Hargreaves, Kenneth
Murphy, Christopher


Harris, David
Neale, Gerrard


Hawkins, C. (High Peak)
Needham, Richard


Hawkins, Sir Paul (SW N'folk)
Nicholls, Patrick


Hawksley, Warren
Nicholson, J.


Hayes, J.
Normanton, Tom


Hayhoe, Barney
Norris, Steven


Hayward, Robert
Oppenheim, Philip


Heathcoat-Amory, David
Ottaway, Richard


Henderson, Barry
Page, Richard (Herts SW)


Hill, James
Parkinson, Rt Hon Cecil


Hirst, Michael
Parris, Matthew


Hogg, Hon Douglas (Gr'th'm)
Pawsey, James


Holland, Sir Philip (Gedling)
Peacock, Mrs Elizabeth


Holt, Richard
Penhaligon, David


Hooson, Tom
Percival, Rt Hon Sir Ian


Howard, Michael
Pollock, Alexander


Howarth, Alan (Stratf'd-on-A)
Powell, Rt Hon J. E. (S Down)


Howarth, Gerald (Cannock)
Powell, William (Corby)


Howell, Ralph (N Norfolk)
Powley, John


Howells, Geraint
Prentice, Rt Hon Reg


Hubbard-Miles, Peter
Proctor, K. Harvey






Rees, Rt Hon Peter (Dover)
Spencer, Derek


Rhys Williams, Sir Brandon
Squire, Robin


Ridsdale, Sir Julian
Stanbrook, Ivor


Roberts, Wyn (Convey)
Steel, Rt Hon David


Roe, Mrs Marion
Steen, Anthony


Ross, Wm. (Londonderry)
Stern, Michael


Rowe, Andrew
Stevens, Lewis (Nuneaton)


Ryder, Richard
Stevens, Martin (Fulham)


Sackville, Hon Thomas
Stewart, Allan (Eastwood)


Shaw, Giles (Pudsey)
Stewart, Andrew (Sherwood)


Shelton, William (Streatham)
Stewart, Ian (N Hertf'dshire)


Shepherd, Colin (Hereford)
Stokes, John


Shepherd, Richard (Aldridge)
Stradling Thomas, J.


Sims, Roger
Sumberg, David


Skeet, T. H. H.
Tapsell, Peter


Smith, Sir Dudley (Warwick)
Taylor, John (Solihull)


Smith, Tim (Beaconsfield)
Taylor, Teddy (S'end E)


Smyth, Rev W. M. (Belfast S)
Tebbit, Rt Hon Norman


Soames, Hon Nicholas
Temple-Morris, Peter





Terlezki, Stefan
Wardle, C. (Bexhill)


Thomas, Rt Hon Peter
Wells, John (Maidstone)


Thompson, Donald (Calder V)
Wheeler, John


Thompson, Patrick (N'ich N)
Whitfield, John


Thurnham, Peter
Winterton, Mrs Ann


Townend, John (Bridlington)
Winterton, Nicholas


Trotter, Neville
Wolfson, Mark


Twinn, Dr Ian
Wood, Timothy


van Straubenzee, Sir W.
Woodcock, Michael


Vaughan, Sir Gerard
Wrigglesworth, Ian


Viggers, Peter
Young, Sir George (Acton)


Wainwright, R.



Wakeham, Rt Hon John
Tellers for the Noes:


Walker, Cecil (Belfast N)
Mr. Tim Sainsbury and


Waller, Gary
Mr. John Major.


Ward, John

Question accordingly negatived.

Finance (No.2) Bill

Motion made, and Question proposed, That the clause stand part of the Bill.

Sir William Clark: I know that it is late. I do not want to detain the Committee long, so I will not make a long speech. I wish to object strongly because I and some of my hon. Friends tabled amendments to clause 57 and the Table, in its wisdom, ruled that they were outside the ambit of the clause. I disputed that and was told that I could possibly have a debate if I tabled a new clause. If we do not debate clause 57 it means that the capital allowance changes go by default.
It is no good thinking that the matter can be raised in Committee, because if the clause is accepted here, as I have no doubt that it will be, it cannot be raised in Committee. The same applies to schedule 12. I wish to register my protest. I do not blame you Mr. Armstrong. Amendment No. 42 tried to simplify the matter and alleviate the impact of the change in capital allowances which will affect leasing arrangements and many manufacturing industries, television shipping and so on. As the amendment was ruled out of order, the matter cannot be raised again. There is something wrong with our system when one cannot have a second bite at the cherry.
Amendments Nos. 37 and 40, which were tabled in time, related to industrial and commercial buildings. It is of great interest to industry and commerce that these matters should be debated and should not go through on the nod.
In the past one could use capital allowances as a type of reverse roll-over relief whereby some capital allowances could be used to set off some capital charges. I do not wish to go into the merits or technicalities of that. I want to protest that these amendments were ruled out of order for one reason or another. Being the fair-minded man that you are, Mr. Armstrong, I am sure that you would agree that if some of my hon. Friends and myself tabled a new clause, which will be technically in order, we should have an opportunity to debate it. I am not trying to get a commitment out of you, Mr. Armstrong, but in the selection process with which you have quite a lot to do I hope that at Report stage we can have the opportunity of debating these clauses because it would be wrong to let go through on the nod a change in capital allowances as they affect manufacturing industry and the economy.
I am not asking that we should debate the matter tonight but that we should have an opportunity to come back to it. Upstairs in Standing Committee we cannot raise clause 57 or schedule 12. I am sure that hon. Gentlemen on both sides of the Committee want the opportunity to debate this on Report.

Mr. Michael Colvin: I support most strongly what my hon. Friend the Member for Croydon, South (Sir W. Clark) has said. I think we all accept that some change in the capital allowances system was called for, and we accept that what has been done and will be done on corporation tax, and what has already been done on national insurance surcharge, give additional incentives for investment. Therefore, some change in capital allowances was obviously acceptable.
The Government should have a careful look at some of the reservations which have been expressed about the

impact of the new writing down 25 per cent. scheme on certain industries. The amendments that were tabled by my hon. Friend the Member for Croydon, South and myself referred in part to the shipping industry. This industry is undergoing considerable commercial difficulties and asked for its current 100 per cent. depreciation rate to be increased to 140 per cent. I have reservations about that because there is already excessive tonnage in the world and that might only add to the excess.
Nevertheless, I think that between now and Report the Government ought to consider most carefully some of the representations that have been made about the shipping industry. There is a case for special consideration for such an industry. After all, half of the 107 ships which went to the Falklands campaign were merchantmen. The fleet is aging and some incentive has to be given to new build. Unless the Government are prepared to treat the industry as a special case, there is a grave danger that our share of world tonnage will decline even further.

Sir Geoffrey Johnson Smith: ): I realise that due to the conventions of the House it is improper for me to argue any case for the British film industry and I declare an interest because I am an unremunerated governor of the British Film Institute. Some of us would like to use this opportunity to air our feelings about it, as well as the effect the clause will have on the merchant shipping fleet. We want an assurance from the Minister that we shall have every opportunity during the passage of this Bill to air what I believe to be reasonable grievances, although I do not want to go into every detail.

Mr. Moore: I speak with some diffidence, Mr. Armstrong, because clearly I would not seek to go beyond the area of order. I have heard what has been said, but it would be improper for me to go further. It is in the hands of others to decide where the issue is debated. I recognise the importance of the points that have been raised. We are all aware of what is on the Amendment Paper, whether or not it can be discussed. Obviously one would look at this matter with great care.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 195, Noes 66.

Division No.268]
[10.54 pm


AYES


Aitken, Jonathan
Crouch, David


Ancram, Michael
Dorrell, Stephen


Ashby, David
Evennett, David


Ashdown, Paddy
Favell, Anthony


Atkins, Robert (South Ribble)
Finsberg, Sir Geoffrey


Baldry, Anthony
Fletcher, Alexander


Batiste, Spencer
Forman, Nigel


Beaumont-Dark, Anthony
Forth, Eric


Bellingham, Henry
Fox, Marcus


Benyon, William
Franks, Cecil


Berry, Sir Anthony
Fraser, Peter (Angus East)


Biffen, Rt Hon John
Freeman, Roger


Boscawen, Hon Robert
Galley, Roy


Bowden, Gerald (Dulwich)
Gardiner, George (Reigate)


Braine, Sir Bernard
Garel-Jones, Tristan


Brandon-Bravo, Martin
Goodlad, Alastair


Bruce, Malcolm
Grant, Sir Anthony


Buck, Sir Antony
Greenway, Harry


Butterfill, John
Gregory, Conal


Clark, Dr Michael (Rochford)
Griffiths, E. (By St Edm'ds)


Clarke, Rt Hon K. (Rushcliffe)
Griffiths, Peter (Portsrrrth)


Clegg, Sir Walter
Ground, Patrick


Colvin, Michael
Hamilton, Hon A. (Epsom)


Conway, Derek
Hamilton, Neil (Tatton)


Cranborne, Viscount
Hampson, Dr Keith






Hanley, Jeremy
Page, Richard (Herts SW)


Hargreaves, Kenneth
Parkinson, Rt Hon Cecil


Harris, David
Parris, Matthew


Hawkins, C. (High Peak)
Pawsey, James


Hawkins, Sir Paul (SW N'folk)
Peacock, Mrs Elizabeth


Hawksley, Warren
Penhaligon, David


Hayes, J.
Percival, Rt Hon Sir Ian


Hayward, Robert
Pollock, Alexander


Heathcoat-Amory, David
Powell, William (Corby)


Henderson, Barry
Powley, John


Hirst, Michael
Prentice, Rt Hon Reg


Hogg, Hon Douglas (Gr'th'm)
Proctor, K. Harvey


Holt, Richard
Rees, Rt Hon Peter (Dover)


Hooson, Tom
Rhys Williams, Sir Brandon


Howard, Michael
Ridsdale, Sir Julian


Howarth, Alan (Stratf'd-on-A)
Roberts, Wyn (Conwy)


Howarth, Gerald (Cannock)
Roe, Mrs Marion


Howell, Ralph (N Norfolk)
Rowe, Andrew


Howells, Geraint
Ryder, Richard


Hubbard-Miles, Peter
Sackville, Hon Thomas


Hughes, Simon (Southwark)
Sainsbury, Hon Timothy


Hunter, Andrew
Shaw, Giles (Pudsey)


Jessel, Toby
Shelton, William (Streatham)


Jones, Gwilym (Cardiff N)
Shepherd, Colin (Hereford)


Jones, Robert (W Herts)
Shepherd, Richard (Aldridge)


Joseph, Rt Hon Sir Keith
Sims, Roger


Kellett-Bowman, Mrs Elaine
Smith, Tim (Beaconsfield)


Key, Robert
Soames, Hon Nicholas


King, Roger (B'ham N'field)
Spencer, Derek


Kirkwood, Archibald
Squire, Robin


Knight, Gregory (Derby N)
Stanbrook, Ivor


Lamont, Norman
Steel, Rt Hon David


Latham, Michael
Steen, Anthony


Lawler, Geoffrey
Stern, Michael


Leigh, Edward (Gainsbor'gh)
Stevens, Lewis (Nuneaton)


Lennox-Boyd, Hon Mark
Stevens, Martin (Fulham)


Lester, Jim
Stewart, Allan (Eastwood)


Lightbown, David
Stewart, Andrew (Sherwood)


Lilley, Peter
Stewart, Ian (N Hertf'dshire)


Lloyd, Peter, (Fareham)
Stokes, John


Lord, Michael
Stradling Thomas, J.


Lyell, Nicholas
Sumberg, David


McCrindle, Robert
Tapsell, Peter


McCurley, Mrs Anna
Taylor, John (Solihull)


MacKay, Andrew (Berkshire)
Taylor, Teddy (S'end E)


MacKay, John (Argyll &amp; Bute)
Tebbit, Rt Hon Norman


Maclean, David John
Temple-Morris, Peter


McNair-Wilson, P. (New F'st)
Terlezki, Stefan


Malins, Humfrey
Thomas, Rt Hon Peter


Marland, Paul
Thompson, Donald (Calder V)


Mather, Carol
Thompson, Patrick (N'ich N)


Maude, Hon Francis
Thurnham, Peter


Mawhinney, Dr Brian
Townend, John (Bridlington)


Maxwell-Hyslop, Robin
Trotter, Neville


Meadowcroft, Michael
Twinn, Dr Ian


Mellor, David
van Straubenzee, Sir W.


Merchant, Piers
Viggers, Peter


Meyer, Sir Anthony
Wakeham, Rt Hon John


Miller, Hal (B'grove)
Waller, Gary


Mills, lain (Meriden)
Wardle, C. (Bexhill)


Mills, Sir Peter (West Devon)
Wells, John (Maidstone)


Miscampbell, Norman
Wheeler, John


Moate, Roger
Whitfield, John


Moore, John
Winterton, Mrs Ann


Morrison, Hon C. (Devizes)
Winterton, Nicholas


Morrison, Hon P. (Chester)
Wolfson, Mark


Moynihan, Hon C.
Wood, Timothy


Murphy, Christopher
Woodcock, Michael


Neale, Gerrard
Wrigglesworth, Ian


Needham, Richard
Young, Sir George (Acton)


Nicholls, Patrick



Normanton, Tom
Tellers for the Ayes:


Norris, Steven
Mr. David Hunt and


Oppenheim, Philip
Mr. John Major.


Ottaway, Richard



NOES


Anderson, Donald
Beckett, Mrs Margaret


Archer, Rt Hon Peter
Bell, Stuart


Barron, Kevin
Benn, Tony





Bermingham, Gerald
Madden, Max


Clay, Robert
Maginnis, Ken


Cocks, Rt Hon M. (Bristol S.)
Milian, Rt Hon Bruce


Cohen, Harry
Miller, Dr M. S. (E Kilbride)


Cook, Frank (Stockton North)
Mitchell, Austin (G't Grimsby)


Corbett, Robin
Nicholson, J.


Craigen, J. M.
Oakes, Rt Hon Gordon


Cunliffe, Lawrence
Park, George


Dalyell, Tam
Patchett, Terry


Davies, Ronald (Caerphilly)
Pike, Peter


Davis, Terry (B'ham, H'ge H'I)
Powell, Raymond (Ogmore)


Dixon, Donald
Randall, Stuart


Dormand, Jack
Redmond, M.


Dubs, Alfred
Richardson, Ms Jo


Evans, John (St. Helens N)
Robertson, George


Faulds, Andrew
Rooker, J. W.


Fisher, Mark
Ross, Wm. (Londonderry)


Flannery, Martin
Short, Ms Clare (Ladywood)


Forsythe, Clifford (S Antrim)
Skinner, Dennis


George, Bruce
Soley, Clive


Godman, Dr Norman
Stott, Roger


Harman, Ms Harriet
Strang, Gavin


Hattersley, Rt Hon Roy
Thomas, Dr R. (Carmarthen)


Hogg, N. (C'nauld &amp; Kilsyth)
Walker, Cecil (Belfast N)


Hughes, Dr. Mark (Durham)
Wardell, Gareth (Gower)


Hughes, Sean (Knowsley S)
Welsh, Michael


Loyden, Edward
Wigley, Dafydd


McCartney, Hugh
Wilson, Gordon


McCusker, Harold



McDonald, Dr Oonagh
Tellers for the Noes:


McNamara, Kevin
Mr. Frank Haynes and


McWilliam, John
Mr. Allen McKay.

Question accordingly agreed to.

Clause 57 ordered to stand part of the Bill.

The First Deputy Chairman of Ways and Means (Mr. Ernest Armstrong): Before we come to schedule 12, I should draw the Committee's attention to a printing error on page 157 of the Bill. The numbering of the subparagraphs jumps from subparagraph (4) to subparagraph (6). That will be put right when the Bill is reprinted for Report.

Schedule 12

INITIAL ALLOWANCES AND FIRST-YEAR ALLOWANCES

Sir William Clark: I beg to move amendment No. 38, in page 154, line 11, at end insert
'and expenditure shall be deemed to be incurred when the asset first belongs to the person in question or, if earlier, when the sums in question are paid.'.

The First Deputy Chairman: With this it will be convenient to take amendment No. 41, in page 154, line 36, at end insert
'and expenditure shall be deemed to be incurred when the machinery or plant first belongs to the person in question or, if earlier, when the sums in question are paid.'.

Sir William Clark: I wonder whether it might be for the convenience of the Committee if we dealt with not only amendments Nos. 38 and 41 but amendment No. 45, in page 156, line 6, leave out paragraphs 5, 6, 7 and 8. The amendments are all interconnected.

The First Deputy Chairman: If the Committee agrees with that, it is in order.

Sir William Clark: Thank you, Sir. These are probing amendments. I hope that my hon. Friend the Financial Secretary will say that he will have further talks with industry. The schedule has given rise to much concern in


industry and commerce. If, before Report, my hon. Friend could give me an assurance that he will have further consultation with outside parties, I should be happy.

Mr. Moore: My hon. Friend the Member for Croydon, South (Sir W. Clark) has said that this is an area of great technical difficulty. Debates are still going on between the Revenue and outside accounting bodies. I assure him that that consultation is proceeding. There is no debate about the aims of the schedule. I shall report back.

Sir William Clark: In view of what my hon. Friend has said, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.

Mr. Moore: I beg to move amendment No. 43, in page 154, line 43, after 'March', insert '1984'.
The amendment corrects a textual error. It inserts the year "1984", which was left out of paragraph 3(1)(a).

Amendment agreed to.

Mr. Moore: I beg to move amendment No. 44, in page 155, line 47, leave out from beginning to end of line 5 on page 156.
The amendment is required to remove eight lines of text that were inadvertently included in schedule 12(4). I am sorry to burden the Committee with an amendment to delete superfluous words, but I hope that it will be at least some consolation to hon. Members to know that the proposal involves a reduction in the size of the Bill rather than an addition to it.

Amendment agreed to.

Question proposed, That this schedule, as amended, be the Twelfth schedule to the Bill.

Mr. Austin Mitchell: The schedule constitutes the guts of the clause that we briefly and tangentially touched on earlier. It embodies discrimination against manufacturing industry, about which Opposition Members complained earlier. Over the next few years the schedule will first stimulate a rush of investment to beat the cut in the allowances, and then over the long term of reducing investment in British industry, particularly manufacturing industry. That is appalling for a nation that has seen, after a long period of low investment compared with our competitors, a drastic fall of 42 per cent. in investment in manufacturing since the Government came to power in 1979. Now that trend will be hardened by the schedule.
When the Minister was speaking about the decline in the manufacturing industry earlier, he made the point that some investment was attracted into sectors that it might not otherwise be in, and argued that investment decisions should be left to market forces. That is not a rational way to approach such decisions, in a world in which we are competing with a whole series of other economies that give incentives, and in which we have to deal with the inertia of the status quo. Investment cannot suddenly pick up sticks and march into another sector as the allowances in one sector are changed. We are dealing with existing industries, particularly in manufacturing, which compete in the international trading sector, and which have been unsuccessful in it, even with the tax allowances that the Government have provided.
What aid to future success is it to remove those incentives to investment? There is not a tabula rasa, where the investment can simply transfer to another sector. If it does so, it will be lowered by profit, but profit is not necessarily linked with the country's ability to survive in

the competitive world. It can be in the candy floss industries such as commercial television, serving the consumer market distribution, which does not give us the wherewithal for success in a competitive world economy.
Instead, the schedule tilts the balance from manufacturing to services by reducing the incentive to invest in heavily capitalised manufacturing industry. In a nation that has effectively discounted manufacturing industry, that is a disastrous approach. We shall have to face the decline in oil revenues and the need to rebuild manufacturing industry to provide the jobs so that we can survive in the world and pay our way. The latest figures show the disastrous trend of manufacturing decline, and that we are becoming evert more a net manufacturing importer. There is nothing in the schedule to reverse that long-term trend, which can be reversed only if the Government encourage investment in manufacturing industry and provide further incentives for manufacturing investment rather than eliminating it.
As we have not been able to provide the only real incentive for success—profit—because of the way that the economy has been run, with an over-valued pound and interest rates that are far too high, inevitably Governments have had to redress falling profits by providing tax incentives. If we remove that prop as well without providing the alternative, which is a competitive pound and low interest rates to provide the only genuine incentives to investment, we enfeeble an industry that has already been drastically beaten by the Government's economic policies.
In particular, we do not provide for the investment climate that we need in high technology industries. It is interesting how many other countries are providing incentives to invest in micro-electronics and manufactures in that sector, and how inadequate our tax incentives to invest in that sector are when compared with that.
Two further specific points arise out of the schedule, which must be touched on by the Opposition. The first relates to the effect of the changes in the schedule on cable television. The Government threw themselves into the expansion of cable television with enormous enthusiasm. Great expectations were held out that this would be the second railway age, the new dynamic of investment. The country would be linked by cable as it had been linked by the railways in the 19th century. The assumption was that investment would be drawn in by the law of the profits made on entertainment, and it would also provide information and interactive services through the profits made on entertainment. Grandiose expectations were held out by the Prime Minister and by the Minister for Information Technology.
On that basis, the decision has been given to go ahead with pilot projects. The people investing in those pilot projects, the groups which have been formed and the consortia that will bid for them have made their projections, investment plans and plans for a return on the capital invested on the basis of the 100 per cent. allowances, which the schedule eliminates. The foundation of their decision-making which was encouraged by the Government, and into which they were lured by the Government, has been swept away in one fell swoop. Before the Budget, these groups were told that they would get full capital allowances on the plant involved in the cable operations. That promise was swept away suddenly by the elimination of the capital allowances on which they based their calculations.
11.15 pm
.
The prospects for cable television have been seriously undermined by the increasing trend for independent assessments of the prospects of the industry to become more and more gloomy, and by the increasing tightening up of the market as the firms involved merge into fewer units. Indeed, Mr. James Lee of Goldcrest, which took on the former editor of The Times, Mr. Harold Evans, said:
I believe that only an existing organisation can now provide a news service. ITN, the BBC, and Ted Turner in America have a huge advantage. It is not possible for an independent.
The groups that went in holding out prospects of profit were already realising that those profits were not going to materialise, they were already on the merger trail, and the market was already tightening before this prop was swept away. It looks as though one section of the Government does not know what the other section is doing. The prospectus is based on 100 per cent. capital allowances, and the Chancellor suddenly sweeps them away.
When the industry goes to see Treasury Ministers, it has a sympathetic hearing, but nothing else. The Financial Times has said:
those involved in cable television development were taken by surprise by the Chancellor's statement on capital allowances.
Not only they but the entire industry were taken by surprise. As a result of the Budget, the yield on these investments after 1986 will be a maximum of 4 per cent. the break-even date on which many of those involved have planned is moved back years in many cases. The foundation of their planning has been kicked away by this decision, which appears not to have involved the Department concerned with cable television. Nobody else seems to have been consulted about this change, which has altered the basis of investment in the industry.
One wonders whether that is why the Government are now talking along the lines of cable television having to be associated with telephone development. In other words, they have to be offered extra profit opportunities, because it is profit opportunities that the Chancellor has eliminated. This represents a threat to British Telecom, and to its provision of television services.
It is clear that at least three of the 11 successful applicants for these trial contracts now have serious financial problems. Those problems will be greatly increased by what the Chancellor has done in the schedule. The customers for interactive cable services, and the people proposing to invest in them, are holding back, and will continue to do so. It is also clear that Plessey needs two of the applicants to purchase its equipment if it is to make a profit on that equipment, and the positive orders will not now be forthcoming. The crisis generated by the Chancellor will therefore spread back into other services supplying the industry.
Finally, the provisions in the schedule will adversely affect the British film industry. Again, one section of the Government seems not to have consulted with others. After all the talk about the renaissance of the British film industry and the need to encourage it and extend its boundaries, the Chancellor without any consultation eliminates the capital allowances and thus removes the basis of so much of what has been achieved in the industry. Without tax incentives and the deliberate state subsidies of the kind that have encouraged the boom in the Australian industry, for instance, the film industry in this country which has been badly battered over the years with the decline of the British independents and the British giants cannot sustain the revival.
The revival of the industry has been based on three factors, the removal of any one of which will seriously undermine the whole revival and probably extinguish it. First, the industry is based on skills developed by the British film industry and since nurtured by television. Those skills are available to outside film companies such as American companies coming in to use them as well as to British film makers if they can raise the capital because it is now a matter of stitching together the capital package needed to keep the industry going. Secondly, the industry has been based on the Eady levy which is now threatened by the Government. That levy provides basic continuity of finance for the industry. Thirdly, the industry has been encouraged by the tax inducements provided by capital allowances which the schedule would eliminate.
Those three factors have formed the basis of the revival that has finally come and has been so greatly welcomed by those of us who regard a vibrant, exciting and excellent British film industry as an essential part of national culture which must be nurtured in this cold, hard world if it is to survive. Unlike the French and other European industries, and indeed the Indian industry, our industry does not have the advantage of a huge natural market with natural non-tariff barriers such as language and without any one of those three bases it will be in danger.
On 19 January last year, the then Financial Secretary told the House and the world in a written answer that the 100 per cent. allowances for the film industry would be extended until 1987. Perhaps the Minister will tell us exactly what was said to the film industry and what was meant by that apparently specific answer on the basis of which investment decisions have been taken. A prop has suddenly been knocked away from the industry by the Chancellor with his brisk, bustling approach, charging at fundamental and difficult problems like a bull at a gate, without regard for present realities, with a flat rule to sweep away capital allowances and encourage what he regards as the right kind of healthy investment.
What is to replace that prop which is to be removed from the industry? What prospects can the Minister hold out for a British film industry in which at least a proportion of the investment is based on the incentives provided by capital allowances? The managing director of the National Film Finance Corporation, Mr. Hassan, has said specifically that the fall in production will be between a third and a half. In other words, the removal of the tax incentives will lead to a steep decline in production, and unemployment, which is already high in the film industry, will increase among technicians whose skills in my view and in the view of others are among the best in the world and constitute another of the bases on which the industry rests.
The Chancellor is producing hard times for a film industry which we need as part of our national culture. That industry makes us different and explains us to the world. At this late hour, it is no use cataloguing the triumphs of the British film industry, but my worry is that no film industry will be left to carry on these skills and to provide future films if this tax incentive, on which so much investment in recent years has been based, is eliminated in this fashion.

Mr. Ian Wrigglesworth: I strongly support the remarks of the hon. Member for Great Grimsby (Mr. Mitchell) about the film industry. Several other similar industries—although the film industry is


probably the most outstanding—will be damaged by the changes in the Bill. I hope that the Government will respond to the pleas that have been made, not least by some of the Minister's hon. Friends, on behalf of those industries.
I hope that the hon. Member for Wealden (Sir G. Johnson-Smith), who spoke in the previous debate, will come forward with new clauses to amend the Bill to take account of the damaging impact that it will have on certain industries. Despite that, I and my colleagues support the general thrust of the reform that the Government have undertaken. That is why we have supported them in the Lobby this evening. This is an overdue reform, and the Government are to be congratulated on taking a bold step, which has been canvassed for a long time.
It was something that the hon. Member for Great Grimsby said about the relationship between the manufacturing and service industries that more than anything stimulated me to make this brief contribution. For several years in our discussion on Finance Bills I have moved that allowances available to manufacturing industry should be extended to the service industries. I was particularly concerned with the interests of the distributive industry, especially the co-operative movement, which felt that it was unfairly discriminated against by the non-availability of the allowances to that sector.
In previous Finance Bill Committees I have argued the case for the service sector, and although I have always received a sympathetic response in principle from Ministers, both Labour and Conservative, there has been no further action in support.
The case for the service sector is extremely powerful. Manufacturing  cannot succeed without the support of the  sector, particularly the distributive sector. If the  that industry makes are not distributed to the consumer and if the raw materials are not transported to the places where the goods are made, manufacturing industry cannot succeed. The economy must be looked at as a whole, and we cannot draw these clear distinctions between the manufacturing sector and the distributive sector. They are dependent one upon the other.
I do not disagree with the hon. Member for Great Grimsby in his anxiety about the decline of the manufacturing sector. How could I, coming from an area such as Teesside which has seen so much decline in that sector? The distributive and service sectors have been penalised by that decline, and they are also dependent one upon the other. For that reason, they should be treated equally in tax terms. I have not heard this argument marshalled in favour of the Government's case for these reforms. I therefore felt it right to make it clear to the Committee that the service sector will now be on all fours with the manufacturing sector, something for which those in the distributive, retail and service sectors have been campaigning for many years.
11.30 pm

Mr. Austin Mitchell: It may be argued that in a mature economy the manufacturing sector will decline and the service sector—which I believe to be parasitic on it—will grow. But what has happened in Britain has been much more abrupt and cataclysmic than that. There has been a drastic decline in manufacturing that has not been paralleled in any other country. There has been a greater loss of jobs, a greater fall in output and a greater shrinkage

generall0y. In such a position, should not discrimination in favour of manufacturing industry not only be maintained but increased, to try to revive a sector that alone must provide jobs on the scale that a nation of 52 million will need?

Mr. Wrigglesworth: I have some sympathy with the hon. Gentleman. The decline in manufacturing industry in recent years—and even right back to the beginning of the century—has has been catastrophic for Britain. But I disagree with him in his antagonism towards the service sector. He referred to it as being parasitic upon the manufacturing sector. I have been prejudiced in favour of manufacturing industry, and largely remain of that view. But we should not describe the service sector as being parasitic upon the manufacturing sector.
The two sectors are dependent one upon the other. Manufacturing industry cannot survive without insurance, banking and all the other services it needs to succeed in world competition and if Britain is to be a major trading country. Despite Eltis and Bacon—I am sure that the hon. Gentleman will remember their writings on the subject—it is inevitable that the service sector will grow steadily and the manufacturing sector will decline over a long period — not in the current dramatic way — in employment prospects because of the technological changes and the greater wealth that is available in such developing societies as ours.
The local authority sector, the National Health Service and all the other services have been growing steadily during the past couple of decades because of the increased wealth available for people to spend. That is a welcome development. We should not decry it on that old puritanical and noble view of life that the pinnacle of achievement is to be a miner and do that dirty, awful job to which we should not condemn any person. If we had a civilised society we would not want anyone to go into the earth to dig our coal—we would want machines to do it so that people would not be subjected to that environment and danger—work that we are happy for others to do, but which we could well do without.

Mr. Austin Mitchell: I am sure that the Social Democratic party would like to keep the miners in being if only to have an object to attack in its usual fraternal greetings to the trade union movement. Surely the distinction is not between mining and other occupations, but between those who produce things and those who manipulate money. The whole tendency in Britain has been to encourage people to enter the professions—the financial sector, advertising and the media, rather than the manufacturing industry that has been the basis of our success in the past and of the success of our competitors, especially West Germany and Japan.

Mr. Wrigglesworth: I am slightly surprised to hear the hon. Gentleman criticise people in the media. However, I accept the general thrust of his argument. Not only is the service sector abused by some people — whether speculators playing bingo on the Stock Exchange or on the futures markets — but curious things happen in the manufacturing sector that are not essential to our way of life in Britain or anywhere else. It is a waste of resources that could be spent on much more worthwhile purposes.

Mr. Bell: Will the hon. Gentleman agree that there is nothing mutually exclusive between supporting a service


industry and supporting a manufacturing industry? Lest he gives the impression that we in the Labour party believe that the manufacturing industries should, in the years ahead, be wound down, may I urge him to accept that that is not our philosophy, because we believe in a strong manufacturing base, assisted by capital allowances, and we support a strong service sector because, in our view, there is nothing mutually exclusive between the two?

The Second Deputy Chairman of Ways and Means (Mr. Paul Dean): Order. The debate is becoming rather too wide. Hon. Members must not go into the respective merits of various types of investment.

Mr. Wrigglesworth: He may have been unaware of it, but the hon. Member for Middlesbrough (Mr. Bell) made my case for me. He said that the two sectors were mutually dependent, which was the case I was adducing in supporting the Government in the change in the tax base that they are making. I accept that there is no reason to draw a distinction between the two sectors in the way that some Opposition Members wish to do.
There are certain actions that the Government should have taken long ago to help the manufacturing sector of industry and to prevent the devastation in that sector that has occurred in recent years. However, the direction in which the Government are moving in the schedule is, in my view, right and I am sure that many people who perform a valuable function in society in the service sector welcome the change that is taking place.

Mr. Bell: My hon. Friends and I oppose the schedule, which deals with capital allowances, and I have a particular constituency reason for opposing it.
We were discussing with ICI at Wilton the possibility of a coal conversion unit being installed at Wilton power station, rather than the station using another type of fuel. When it became known that the Government were proposing to phase out capital allowances, there was a pause in the development of that project because the chairman of ICI's division in my constituency was not sure whether phasing out would affect the project.
I accept that we are talking about transitional arrangements; I think I see the Financial Secretary nodding in assent. However, my local experience belies his earlier argument that not only does industry welcome these changes and the abolition of capital allowances but that the decision is not having any effect. In fact, it is having an effect and is making industry pause.

Mr. Moore: I wish to correct the misapprehension that the hon. Gentleman had when he thought that I was nodding in agreement with what he was saying. I was indicating that it would not be proper of me, without full knowledge of the subject, to go into it. But as I was involved, as an energy Minister, in the introduction of the coal conversion scheme and as I have considerable knowledge of that industry and area — I obviously welcomed the developments that were occurring—I can say that it is clear that the discussions that no doubt take place on the security of supply are probably today more critical than ever before when considering conversions, remembering that we should all like to see more British coal being used.

Mr. Bell: I am grateful to the Financial Secretary for his intervention. I am grateful also to you, Mr. Dean, for

allowing us to wander slightly from the scope of the schedule. It is in the interests of my constituents that we do so, as the Financial Secretary understands. He has advanced a valid case on supplies, but supplies should not be made a scapegoat or used as a threat to prevent units being converted to coal burners.
The proposals of the Chancellor of the Exchequer for capital allowances in his Budget statement made ICI, a major industrial company, pause to consider its plans. That belies the statement that the abolition of capital allowances will not have an effect upon industry. It is having an effect, and it will have a greater effect upon other industries such as shipping. The General Council of British Shipping Ltd. has expressed serious concern at the abolition of capital allowances. It believes that the Government's proposals will mean the loss of free depreciation for the industry. That must cause great concern to my constituents who live on Teesside, facing the North sea. Many of them are involved in merchant shipping as merchant seamen. They and the general council are concerned that the phasing out of capital allowances will have an adverse effect upon the merchant fleet and merchant shipping generally.
The adverse effect which is feared cannot have been an unforseen consequence of the Budget. It was foreseen, and this shows a lack of consideration and care; for, and attention to, our manufacturing and genuinely productive industries. If the schedule is allowed to stand part of the Bill, we shall see unfortunate consequences for our merchant fleet in years to come. Our fleet is losing tonnage at an alarming rate because of the severe and protracted recession in world shipping. Orders  fleet stand at less than 1 million tonnes. In 1975,  United Kingdom had 9 per cent. of the world's fleet  1983 its share had decreased to 3 per cent. British or  are now less than 2 per cent. of world orders. The general council has stated aptly that the outlook is grim. It considers that the Government are proposing measures that will inevitably lead to a smaller, ageing and uncompetitive fleet.
The Chancellor of the Exchequer and the Financial Secretary must know that shipping does not qualify for the aids that are available to other industries. It has no protection in the face of severe international competition from low-cost flags and subsidised operators. The allowances that are to be phased out over a transitional period have been an advantage for the industry. The general council believes that they were its only advantage, but the allowances are to be removed despite the valuable contribution that shipping has made to defence, our balance of payments, employment and trade. It is a matter of concern to the shipping industry that the allowances will be phased out.
We have heard a great deal in the House of Commons and elsewhere about silicon glen, which is the equivalent of silicon valley in California. The glen is where the sunrise industries are establishing themselves. As the hon. Member for Stockton, South (Mr. Wrigglesworth) has said, we are not opposed to these industries. We welcome and support them and their contribution to our national economy and unemployment prospects. However, the investment in the Scottish computer industry was the result of favourable capital allowances. If the schedule remains part of the Bill, the allowances will be removed. These important industries would be dissipated if the allowances were discontinued.


Other Governments have used the vacuum created by Britain to entice high-growth computer companies by advertising their capital allowances. West Germany is never slow to tell industrialists throughout the world that it has substantial capital allowances to offer. The Germans must smile and shake their hands with joy on seeing that we shall phase out these capital allowances as part of the Government's Budget strategy.
11.45 pm
In a letter to the Financial Times on 26 April 1984, the director general of the Electronic Components Industry Federation drew attention to the substantial capital allowances extant in the United States and Japan. The letter states:
None of your readers, I am sure, would be so naive as to suppose that US and Japanese success in electronics has been achieved by the pure milk of private capitalism untainted by public funds or subsidies; directly or indirectly vast expenditures of taxpayers' money have been devoted to ensuring it.
The director general pointed out also—this aspect relates to capital allowances and belies the strategy put forward by the Chancellor and supported by the Financial Secretary—that the Government believe in support for high technology. The Government support that strategy to such an extent that they announced the microelectronics industry support programme mark 2. That measure was generally welcomed by the computer industry. The programme was a creation of the Department of Trade and Industry and was designed to provide support for the microelectronics industry in addition to capital allowances. There is a 100 per cent. capital allowance regime, and additional support of £120 million is to be given to the microelectronics industry support programme. With one hand the Government are providing £120 million for microelectronics, and with the other hand they are taking from the industry by removing capital allowances.
It is late in the evening, and I shall not prolong the debate. We are again seeing a dramatic attack on our manufacturing industry which will hit the so-called sunrise industries in the same way as it will hit the old-fashioned manufacturing industries. The hon. Member for Stockton, South pointed out that we are dealing with an attack on manufacturing industry when we should be seeking to build that industry as we build the service industry. In future years, we shall look back on the Budget, the Government's programme and the abolition of capital allowances and live to regret them.

Mr. Fisher: I join my hon. Friend the Member for Middlesbrough (Mr. Bell) in opposing schedule 12, especially part II, which withdraws first-year allowances. The Financial Secretary, speaking about corporation tax, tried to summon up a brave new world of tax purity in which tax-led investment would be reduced, if not entirely eliminated, on the grounds that such investment was artificial, anomalous and bad. The hon. Gentleman attempted to make a general case for the Government by saying that the Government's proposed changes in corporation tax and capital allowances will increase investment. He failed to make that case. Although the Financial Secretary may have been well-intentioned, he was a little naive about how the real world works. The real world does not operate according to the simple and theoretical model he applies. Matters in the real world are more paradoxical and complicated.
The Financial Secretary said that the abolition of capital allowances in industry generally would lead to

employment. By implication capital allowances are a disincentive to employment because they attract investment in plant and machinery rather than labour. Exactly the opposite has happened in the film industry. Capital allowances have created jobs. The abolition of those allowances will cause employment in the film industry to plummet.
The film industry is a recently successful industry. In the early 1970s it was sometimes extremely unsuccessful. Capital allowances were the crucial factor that made the difference and helped employment. It is an interesting example because the film industry proves the Financial Secretary's point. Investment by means of capital allowances had been to a large extent artificial. The investment was made solely for tax reasons, and not for industrial or investment reasons.
The use of capital allowances in the film industry has often been cynical, and the Financial Secretary might say that it is therefore undesirable. It has made a fortune for tax lawyers, solicitors and entrepreneurs and has in many ways been a form of subsidy for ridiculously highly paid men and women.

Mr. Austin Mitchell: It has also made films.

Mr. Fisher: It has also made films, but the Financial Secretary may say that the industry proves his point. It is an artificial, and therefore unhealthy, way of investing in the film industry. As my hon. Friend the Member for Great Grimsby (Mr. Mitchell) said, if these capital allowances are theoretically undesirable or cynical, they have led to profitable investment, and artistically good films, which are a credit to the country and project an interesting, intelligent and vigorous image of this country abroad. That is something of which we should be proud. Activity is essential to success.
The Financial Secretary, on behalf of the Chancellor, is doing exactly the opposite with the changes. He is seeking to cure what he identifies as impure, bad and artificial investment by ending the activity. He is trying to cut out the cancer of impure and artificial investment by cutting all activity — in this case investment. It may sound a good idea but it is bad and impractical surgery in the real world.
I shall not delay the Committee by referring to the industry's success. People know of it. They know about "Gandhi", "Chariots of Fire", "Ploughman's Lunch", the many films made for Channel 4 television and sold abroad, and this year's entry to the Cannes film festival "Another Country", which is partly financed by the National Film Finance Corporation. Those films have gained prestige abroad. The Government are killing the industry in the search for investment purity.
It is important to see how the Government intend to fill the gap that they will leave if they withdraw first-year capital allowances. The Minister for Information Technology's plan for films, which will replace capital allowances has been long awaited, and often long despaired of, by the industry. The industry has a smell of what is likely to be in the plan for films. It is feared because it appears that when capital allowances go, there will be no National Film Finance Corporation, or its privatised counterpart, the ending of the Eady fund and no effective Government involvement. The industry will be left solely to market forces.
The Government would say, "Surely, that is a good thing." It will be a market completely changed, and


influenced for the worse, by the Government's withdrawal of capital allowances. Such negative action is as potent and effective as Government investment could be for the good of the industry. The industry, left without capital allowances and left to market forces, will be left with almost nothing.

Mr. Austin Mitchell: Market forces will operate on a world scale. In those circumstances the big film companies, and the big investors who are largely American, will film in those countries where the costs of production are cheapest. Unless there are incentives to direct them to this section of the world market we shall be losing the kind of investment and organisational company involvement that we have had from the American film industry, thanks to the incentives we have been able to offer them.

Mr. Fisher: I agree entirely with my hon. Friend. He referred earlier to an assessment of his, together with Mamoun Hassan, of a loss of between one third and one half of the industry's investment. I was speaking to Mr. Hassan earlier today and he said that it might even be as bad as two thirds, something in the region of £200 million in a full financial year.
The Financial Secretary may say that we are withdrawing this artificial capital allowance and we are leaving a strong, profitable and interesting industry to stand on its own feet; I presume that is what the Financial Secretary might say, although I should like him to confirm it. However, it does not work like that in the real world. If the Financial Secretary examined an industry like this rather than making generalised points, he would be able to identify that there are good reasons for making an investment in this industry as in others. Things are not as simple as he seems to think.
Investment is made in the film industry for a variety of reasons. Expertise is here in the form of actors, writers, directors and technicians. All of those are mobile. They can all get on a plane and take their expertise elsewhere. Investment is made partly because of the creative climate and environment. Where there is activity, people will follow. They, too, are mobile.
Investment is made primarily because of the cost of money. What makes investment attractive or otherwise is the cost of money in terms of interest rates and the exchange rate. In spite of the Government's often stated view that they have no exchange rate policy, interest rates and the exchange rate are significantly affected by Government economic policy. I am glad to see the Financial Secretary nodding; now he is shaking his head. He almost betrayed himself into a recognition of what he really knows, that, of course, the exchange rate is affected by Government policy.
Investment is affected by interest rates and the exchange rate but also by the tax climate, in this case capital allowances. If capital allowances are withdrawn, where will production go? It will not stay here. It will go to Europe, to France, where the exchange rate is lower and where the Government are keen on investing in films. Apart from the non-tariff barriers of language they give positive incentives. Alternatively, in the English-speaking world, it will go to Florida, which recently has bid heavily to take away the film industry from Hollywood. Florida wants production because it recognises something that our

Government ought to recognise—that where production is, there is money and there are people with money. Following that money and that activity is employment. The Financial Secretary should recognise on behalf of the Government that that is the reality of the world. If the Government want to attract investment they can, but they will not do it by withdrawing capital allowances as proposed in schedule 12.
There is an irony here because the Department of Trade and Industry, which has schemes earmarked for supporting innovation in industry by means of grants which will to some extent support other industries when their capital allowances are taken away, does not use those innovative grants in the film industry, although it has the potential to do so. That is very sad. Without grants, without Government responsibility for investment and the recognition that the Government have a cultural, as well as an economic, interest in this industry, and without capital allowances this industry, in reality rather than in the perfect world of tax security for which the Financial Secretary is seeking, will be left with nothing.
The schedule, along with other Government policies or lack of them, will leave this small but successful British industry broken-backed. That is the price of the quest of the Financial Secretary and the Government for the Snark of tax purity. It is not a Snark he will find when he has achieved this tax purity. Like the other Snark, this is no Snark but a Boojum.
12 midnight

Mr. Moore: We have had a useful debate and the Committee would not want me to delay it further. The purpose of the schedule is to restructure the main capital allowances in three annual stages by phasing out the accelerated first year and initial allowances for plant and machinery, industrial buildings and assured tenancy properties. The changes will create a better balance for the capital allowance system and enable us to embark on the major programme of progressive reductions in corporation tax.
The hon. Members for Great Grimsby (Mr. Mitchell), Stockton, South (Mr. Wrigglesworth) and Stoke-on-Trent, Central (Mr. Fisher) talked about the difficult problems facing the film industry. I shall not go into them in detail, but I know that the hon. Member for Stoke-on-Trent, Central, with his obvious knowledge of exchange rates, will appreciate the nature of exchange rate changes in the last three or four years in relation to the dollar and the pound. I recognise the implications of the other parts of the fiscal system, but all who are familiar with the film industry will know that they are only one factor in the way in which the industry has developed.
I am fully aware of the importance which the industry attaches to first year allowances. Wider considerations have to be taken into account when deciding the proper pattern for corporate taxation.

Mr. Austin Mitchell: rose—

Mr. Moore: I should like to respond and explain to the hon. Member about the film industry. Films are being treated no differently from machinery and plant generally. We see no case for special treatment. Other industries may be regarded as more vital to the economy—I am not denigrating the film industry—but they will not receive such benefit.
I met film industry representatives on 12 April. We had useful discussions. I  why it was not possible to make exceptions for the film industry. I arranged for further discussions on ways in which expenditure might be written off and how far the industry might be able to take advantage of the business expansion scheme. The discussions are in progress.
The hon. Member for Middlesbrough (Mr. Bell) talked about the impact of the changes on the shipping industry.

Mr. Mitchell: The point that we are making about the film and cable industries is that they are involved in an ancillary Government decision. The Government want to encourage labour rather than capital and so abolish capital allowances. The accidental victim is the cable television industry, which has been led to invest on a Government prospectus, and the film industry which is flourishing. Specific questions about both industries must be asked. What consultation took place about the effects of Government decisions on the industries and what prospects can the Government hold out for success, without capital allowances, given that the industries rely so heavily on capital allowances?

Mr. Moore: I recognise the importance to the hon. Member for Great Grimsby of the cable and film industries. I have said that discussions are taking place. I do not accept that the Government are concerned only with the wider concept and do not consider the impact on each industry.
The Government sought to take account of particular problems in many industries. Some which have become used to a system of allowances may be in more difficulty than others. We are pursuing the problems in discussions.

Mr. Fisher: I am most encouraged, if not reassured, by the knowledge that the Financial Secretary is having continuing discussions and that his mind is not entirely closed. Will he, in those discussions, give some thought to the lead time for investment in the film industry because the film industry, unlike many others, sometimes has three years of investment before the film is made? That investment is heavy and often involves millions of pounds for a large proportion of the final production costs. The Financial Secretary is to cut off investment that has been entered into for a long time on the assumption of the existence of capital allowances.

Mr. Moore: I am conscious of lead times in the film and many other industries. That was a factor in the

transitional phasing pattern. I must re-remind the hon. Gentleman that we could not make an exception for the industry—I have described the type of discussions that we are having.
The Budget changes in regard to shipping must be seen as part of the whole package, which we believe will have an effect on efficiency and profitability throughout the economy. It is inevitable that there are some sectors—shipping is one—in which companies might not do as well or even be disadvantaged. The extent of the disadvantage should not, however, be exaggeraed. Cuts in corporation tax will help some companies. The impact of capital allowance reductions will be less severe for assets with long lives, such as ships, than for those with short lives. Ship owners did not normally qualify for stock relief, for example, so they will not lose there. The Chancellor is proposing to alter the timing of writing-down allowances in such a way as to help long-lead assets when stage payments are normally made in advance of delivery. The changes are being staged to give companies time to adjust. I recognise that the shipping industry has been going through a difficult period, but to introduce special provisions for everyone who feels disadvantaged would undermine the financial basis on which business tax reforms are founded.
I met the General Council of British Shipping on 13 April and trade unions representing seafarers yesterday. I explained the objections to exempting them from the changes, even temporarily. I have arranged for further discussions with officials on the balancing charges and on seamen's earnings. Those exchanges are taking place.
I do not want to detain the Committee, but I must refer to the speech of the hon. Member for Stockton, South. I welcomed his recognition of the valuable challenge that the Government have embraced. I accept that he envisages the difficulties associated with change, but he brought a sense of balance to the debate, which sometimes gets a little sterile about the difference between service industry and manufacturing industry. We all want both to be successful and not to be disadvantaged. On that basis, I trust that the Committee will allow the schedule to proceed.

Question put and agreed to.

Schedule 12, as amended, agreed to.

To report Progress and ask leave to sit again.—[Mr. Peter Rees.]

Committee report Progress; to sit again this day.

Gas (Northern Ireland)

The Minister of State, Northern Ireland Office (Mr. Adam Butler): I beg to move,
That the draft Gas (Amendment) (Northern Ireland) Order 1984, which was laid before this House on 9th April, be approved.
The purpose of the order is to introduce new legislation that would enable gas undertakers to acquire compulsory new rights over land. The order would also provide statutory authority for Government to make available financial assistance to the Northern Ireland gas industry.
The need for the order arises from recent Government decisions on the future of the Northern Ireland gas industry, which has been widely discussed and debated within Northern Ireland and previously raised in the Chamber. On 10 October last year I was able to announce that a memorandum of understanding between the British Government and the Government of the Republic of Ireland for the supply of natural gas to Northern Ireland had been signed. The agreement came at the end of more than two years of negotiations and will ensure the survival of the Northern Ireland gas industry, with important and beneficial implications for the Northern Ireland economy as a whole.
The main item of legislation pertaining to the Northern Ireland gas industry is the Gas (Northern Ireland) Order 1977. The new proposal is intended to strengthen the 1977 order and thereby ensure the full necessary legislative authority required for the construction of a major gas pipeline and related Government expenditure on the development of the gas industry.
Article 3 of the order provides that the powers of compulsory acquisition conferred to a gas undertaker under article 16 of the 1977 order will include power to create and vest in the undertaker new rights over land. that will remove any uncertainty regarding the scope of the earlier legislation in respect of the vesting of easements such as rights of way. The article is required as a necessary legislative safeguard for the Northern Ireland Gas Company, which is currently preparing for the construction of the main natural gas pipeline.
Article 4 empowers the Department of Economic Development, subject to the approval of the Department of Finance and Personnel, to provide finance for a wide range of purposes, including the maintenance, development and restructuring of the Northern Ireland gas industry.
The agreement with the Republic for the supply of natural gas means that for the Northern Ireland consumer, whether domestic, industrial and commercial, there will be the same choice of fuels as in the rest of the United Kingdom, with all the benefits associated with competition between fuels. Also, the availability of natural gas, which is taken for granted throughout most of the rest of western Europe, will enable Northern Ireland to offer the same energy range as other competitors for mobile international investment. For the Northern Ireland gas industry, the agreement signals the arrest of its decline and the prospect of revitalisation. The order seeks to assist that process.
I am pleased to be able to report that work on the design, planning and routeing of the pipeline from the border to Belfast is progressing well under the direction of

the Northern Ireland Gas Company. The signing of the contract with the Irish gas board is expected shortly, and the company is confident that it is on target for the supply of natural gas to Belfast by the last quarter of 1985.
The proposals for the draft order were circulated to all interested parties prior to laying. The generally technical nature of the proposals was recognised, and any relevant comments were of a minor nature. For that reason, I hope that the House will agree to the order.

Mr. Clive Soley: The Opposition welcome the order. It is regarded as necessary for the supply of natural gas. We believe that it is a healthy development, for many of the reasons that the Minister gave. It gives choice to consumers in Northern Ireland and will increase the supply of natural gas to about 11 per cent. from the current figure of about 3 per cent. That must be good.
It is also recognised that the order's use has a wider implication in terms of employment. If the Government were not prepared to go ahead with it, there would be significant effects on the gas supply industry, which would decline, with a consequent loss of jobs.
I have no hesitation in welcoming the order on behalf of the Opposition. It is yet another example of good cooperation between north and south, which we also welcome.

Mr. Harold McCusker: As the Minister said, this is a short order, but it makes two important decisions about the necessary steps to secure the future of the gas industry in Northern Ireland. Article 3 deals with pipeline construction. Article 4 deals with the finances necessary for future organisation and development of the industry.
I shall make a few comments on the latter article first, and impress on the Minister and his officials the importance of making progress on the future organisation and structure of the industry. Despite the efforts that have been made over the past six or seven months in the Province, and the lavish advertising, the industry is suffering badly. There is concern among the professionals in the industry and among those people associated with it about the fact that the major undertaking, the Belfast one, is losing, month after month, at least 300 consumers a month. If one assumes that the dozen or so other smaller undertakings are losing on a pro rata basis, one could reasonably assume that about 400 consumers are leaving the industry each month, despite the fact that an announcement has been made about its future and about bringing the natural gas from Kinsale. Although there has been widespread publicity — about which I make no criticism—designed to enhance the image of gas, to get away from the old image of the dirty gas works, to show the advantage of natural gas and to link it with those things that we find attractive, and despite all the money that has been spent, the industry is still suffering a serious haemorrhage of consumers.
The professionals now feel that they have passed the stage where the general advertising is doing any good. They are saying that they need aggressive marketing at their own level, where they can start promotional campaigns to sell new equipment to put a competitive edge on the price of the fuel. If they do not get those things, they


will he extremely concerned. There is no excuse, because we were well warned about this, and the Minister must have been conscious of this seven months ago.
The Northern Ireland Economic Council, in its document Paper 5 of October 1983, "Northern Ireland Energy Issues: Response to the Government's Discussion Paper", said this:?
However at the price levels which are anticipated we belive that a strenuous marketing effort will be required to achieve the market penetration levels necessary to ensure the financial viability of the project …the project …should be carried forward as quickly as possible to replace the costly town gas industry …the Government should urgently set out the complete natural gas distribution network.
Perhaps the Minister will tell us whether he has come to a conclusion on the distribution network throughout the rest of the Province. He has made certain announcements, but he has not given us all the information.
On page 12, the Northern Ireland Economic Council reinforced its concern when it said:
we believe that the world market price levels which have been discussed for the purchase of natural gas from the Irish Republic may he too high to allow the level of sales which will be required to make the project a commercial proposition.
It reasserted:
A vigorous marketing and promotion campaign will also be essential to maximise market penetration.
The warning bells were being sounded not only by the industry and others such as myself, but by the Northern Ireland Economic Council about the dangers of losing more consumers. It took the opportunity, in its next document, Paper 6 on "Energy Demand Projections" of December 1983, to say:
The experience of introducing cheap natural gas in Great Britain has shown that a rapid increase in market share can be achieved when the price is sufficiently attractive and in circumstances where conversion is relatively simple and cheap.
We have to get quickly to a position where the price is right and present and potential consumers can see the advantage of natural gas coming their way. However, that is not the position at the moment, and the loss of 300 or 400 consumers a month to an already much diminished industry is a serious matter. I hope that the Minister will take on board the necessity to give the managers of the 13 undertakings the authority to sell gas, to try to retain consumers, and to offer them a new range of appliances. I hope that he will even now consider reducing the price of gas from its present astronomic level.
To refer again to article 3, which deals with the construction of the pipeline—

Dr. Brian Mawhinney: I have been listening carefully to what the hon. Gentleman has said. As I understand it, he was asking my hon. Friend to reduce the price of gas, which I suppose is a new way of saying that one is looking for a Government subsidy in terms of the price of gas. Will he give the House some idea of how much Government subsidy he has in mind?

Mr. McCusker: The Government intend to spend approximately £140 million over the next five to 10 years. The Northern Ireland Economic Council, whose opinion should not be discarded lightly, has said that it thinks that this is high-risk money, and that this might not be viable. Gas is being sold in Northern Ireland at three or four times the level at which it is sold in Great Britain. I can buy gas in Vincent square for about 35p or 36p per therm. In my home towm of Portadown, the cost would be 130p per therm. If we are to achieve the take-off required to reach a high volume of sales, perhaps we should not wait until

the pipeline is constructed to consider dropping the price of gas, but we should step down the price of gas to the level at which it will be sold in a couple of years in the hope that an incentive will be given to managers of undertakings to advise people that such a provision has been made. It might be a useful exercise to consider that relatively small additional subsidy to produce the incentive and the motivation to Northern Ireland industry to safeguard the mass investment of over £100 million that is currently being contemplated.
I am not begging for money, but, as the Government have committed themselves to spending a vast amount of money, it might be wise to spend a few pennies at this stage to secure the long-term future.

Mr. Soley: I reinforce the point made by the hon. Gentleman, with which I have much sympathy. He should not feel defensive about asking for such a subsidy. The Government are happy to subsidise agriculture on a massive scale. A subsidy to energy in the context of Northern Ireland industry and personal use makes a great deal of sense.

Mr. McCusker: I am sure that the hon. Gentleman would accept that many people in Northern Ireland are embarrassed by the frequency with which we are characterised as coming to Parliament with our begging bowl, always asking for something more. I am trying to make a case for the expenditure of a few pounds in a rational and, I hope, intelligent manner, and to say that it would be worth while spending a few pounds in an exercise designed to step down the price to secure the longer term investment.
If I may go back to article 3, everybody in Northern Ireland, particularly the people concerned with the employment prospects associated with the construction of the pipeline, welcomes the assertion made by the Minister in a letter sent to me on 4 April this year in which he said:
I can confirm that it is Government's wish and the Gas Company's stated intention that every effort will be made to maximise local employment opportunities on the project and to encourage local sourcing of as many as possible of the elements necessary for all phases of the programme.
He continued to describe the efforts that are being made to publicise the potential opportunities available to the various companies interested. Once again, unfortunately, he seems not to be convincing too many people.
Only this week I was approached by a constituent of my hon. Friend the Member for Antrim, South (Mr. Forsythe), a principal in a small but highly sophisticated industry dealing with inspection processes for pipelines who is concerned that he is being squeezed out of an opportunity in the construction of this pipeline. I was also approached by a fairly large civil engineering concern and provided with two weighty documents, which must have cost quite a lot to produce at a time when there is not much work going in Northern Ireland, not as tender documents but in the hope that I could persuade the gas company to consider them for inclusion in the tendering list.
The extent of the concern felt by Northern Ireland companies is clear when they are prepared to go to such lengths. They are haunted by the experience of the Blackwater drainage scheme. One large company after another in Northern Ireland was excluded from tendering for that one major civil engineering project in that sector this year. The project has gone to a company outside the Province and, although much of the work may be done by


people in the Province, it seems strange that Northern Ireland companies capable of doing the work did not even have the opportunity to put in a price.
Companies are also haunted by their experience in dealing with Northern Ireland civil servants. There is no doubt that there is a tradition among Northern Ireland civil servants going back many years to believe that anything slightly new or difficult could not be done by anyone in the Province. Senior consultant engineers have told me that, and I understand that there is no shortage of examples in the past 20 or 30 years showing that when a major project was envisaged for the Province the people at Stormont always felt safer giving it to people from outside the Province. Recent experience with the Blackwater project and that continuing tradition among civil servants is a matter of great concern to many people in the Province. I hope that local companies will now be told not just that they will have the opportunity to tender but that they will be included on the various tendering lists when the time comes.
It is right and proper that the British Gas Corporation should be taken on as experts and consultants on this. Nevertheless, there is a fear that the corporation will tend to play safe and recommend for certain aspects of the project people with whom it has worked over the past 10 or 15 years, with whom it feels secure and who it knows are capable of carrying out the work. As one man put it to me, the corporation may well think that there is no one in the sticks with any real expertise in these matters. I was glad that the man came from the mainland and had an English accent because if I had said that I might have been regarded as prejudiced. Having come to Northern Ireland to do business there, bringing a great deal of skill and experience with him, he is concerned that people based in London will tend to play safe and to make recommendations based on experience.
If the industry is to go on developing in the next five to 10 years, inexperienced Northern Ireland people will have the chance to gain experience only if they have the opportunity to do some of the work. They may not be able to do it all alone, but many companies are now entering into agreements with mainland companies which have experience in this sector, offering to share the work with companies from outside provided that the Northern Ireland companies have a share of the action and gain experience for next time. I hope that that point will also be taken on board.
Another mechanism used by civil servants to exclude Northern Ireland firms is the setting of parameters which in effect exclude them by saying that companies may apply for inclusion on the tender list only if they have already completed contracts in excess of £X million. In view of the size of Northern Ireland, not many projects will be valued at that sum. I hope that if the lower level is set at, say, £3 million the many Northern Ireland companies that have completed contracts of £2·5 million or more but under £3 million will not be excluded just because a probably somewhat arbitrary level has been agreed.
I hope that the Minister will consider, first, the necessity to give new impetus to the industry. We need more consumers and we cannot afford to lose those now being lost. Let us do all that is required to involve local people at every level and provide short-term employment

opportunities in the construction aspects as well as longterm employment in the ongoing development of the industry.

Mr. James Nicholson: In many ways I feel slightly inadequate following my hon. Friend the Member for Upper Bann (Mr. McCusker) on a subject on which he is so knowledgeable.
The gas will supposedly come, but I wish to concentrate on how it will come and from where. The pipline will have to cross a fair chunk of my constituency, and it is concern on that point that I wish to express.
My concern is for those whose land the pipeline will travel through to reach other parts of Northern Ireland. I am always concerned when agricultural land is disturbed, and the disturbance involved in this project will be immense. Miles of pipeline will have to be laid, some of which will go through rock, thereby requiring the use of compressors and even blasting. Even after it is laid, there will be continuous maintenance and inspection problems.
Any farmer who owns land along the proposed route will be concerned at the damage that will occur to his property as the pipeline is constructed. Of necessity, fields will have to be dug up, and, depending on the time of year, fields of grass, hay or silage will be trampled under foot. Admittedly, at certain times of year the construction of the pipeline may do very little damage, but at other times—construction will have to take place in inclement weather—the damage could be extremely serious.
No matter how it is reinstated, it will take a considerable time for the land to recover fully, if ever it does. Hundreds of hedges along the route will be ripped out and destroyed and drains will also be ruined, not to mention shores and other amenities. This will be bad enough at the best of times, but it is bound to be worse in imperfect weather.
We have a right to ask whether the areas affected will be restored to their original condition. In the past there have been too many experiences of poor workmanship in the laying of pipe tracks throughout Northern Ireland. The only pill that will sweeten this discomfort to landowners will be the compensation they receive for any inconvenience caused. I hope that they receive sympathetic consideration as negotiations continue, as it will be in the Government's interests to have the landowners' support to ensure that installation runs smoothly.
I remind the Minister that market value plus a little more will not compensate any farmer for the loss of the use of his land. Some of them are small farmers, and if the pipeline runs through their farms they could be hit particularly hard.
I need only refer to the famous experience in the Craigavon area many years ago when farmers received a settlement which in those days could have been regarded as generous. However, few of them now would not agree that, in view of the way they have been treated since, that settlement was deplorable. They should be given fair consideration.
I hope that the Minister will ensure that Northern Ireland firms are allowed to tender. I reiterate what my hon. Friend the Member for Upper Bann said about the Blackwater scheme. Firms in Northern Ireland have felt great resentment because they were not allowed to tender for the scheme. Those firms are quite competent to carry


out the job. Indeed, at the end of the day they may do parts of the work. They should be allowed to tender and should be given a fair crack of the whip.
My constituency hopes to gain from any employment created by the scheme. I realise that the Minister cannot guarantee that, but if Northern Ireland firms gained the contract, it would be more likely that Northern Ireland people would be employed. My constituency can do with all the employment it can get, because it has a high unemployment rate.
An enormous amount of money will be spent on laying the gas pipeline. I cannot hide my view that the pipeline should come from the mainland rather than from the south of Ireland. My hon. Friend the Member for Upper Bann agrees with me on that point. Because the pipeline will come from the south, the Government will have to be vigilant. They will have to spend a great deal of money. It always amazes me that they are prepared to spend money on projects that could be dubious at the end of the day. Something must be done quickly to stop the drift from the gas industry, or there will be no industry left by the time the pipeline is ready. I hope that the Minister will consider that point seriously.
I fail to understand why money can be plucked out of the sky for certain projects when the poor dairy farmers of Northern Ireland are being so badly treated. I hope that the Minister will take heed of what has been said.

Mr. Butler: With permission, I shall reply briefly to the debate. I must charitably assume that the remarks of the two previous speakers — the hon. Members for Upper Bann (Mr. McCusker) and for Newry and Armagh (Mr. Nicholson) were hung on articles 3 and 4. They properly widened the discussion, asked questions and made relevant points.
I am delighted that the hon. Member for Hammersmith (Mr. Soley) welcomed something that I brought before the House. I appreciate his brevity in doing so. An important point raised by the hon. Members for Upper Bann and for Newry and Armagh was disquieting, at least in one respect. I had hoped that the drain of customers from the gas industry had been slowed down. However, from the remarks of the hon. Member for Upper Bann, it would appear that that is not the case.
I regret that. The purpose of the advertising, particularly at this stage, is to make it clear that not only is natural gas coming but that the nature of it is different from towns gas. I must tell the hon. Gentleman, and those whom he described as the professionals — the managements of the various undertakings — that they must redouble their efforts in doing their own marketing.
The hon. Gentleman said that they wanted authority to do that—to market—and my answer must be that they are in control of their undertakings. They have a product that is different, but it is up to them—I have made this clear to all with whom I have spoken personally—now that it is known that natural gas is coming, to do everything possible to hold on to their customer base and encourage others back into the fold. If there is any doubt on that score, I shall ensure that my Department contacts them to encourage them in this effort.
They have been closely involved in the present general advertising campaign in the ways that are open to them, through individual contact with their customers and the display of posters and so on. If we can co-ordinate this

effort and make more of it, we must do that because if the consumer base dwindles, the more it dwindles the greater the problem the gas industry will have to develop the volume of sales to the level required to show a fair return on the investment.
The hon. Member for Upper Bann asked me to comment on the distribution of gas and the areas to which it will go. I cannot say more than I have. Gas will come to Belfast and go to Londonderry, and it follows that towns close to the pipeline are almost certain to be included as customers for natural gas. I am on the point of receiving the various market surveys that have been carried out. Therefore, I am not in a position to make clear precisely which towns one would expect the gas to go to, and mentioning certain towns would not rule out the possibility of sales to others. I cannot say more than that tonight.
The hon. Member for Upper Bann referred to a reduction in price, and he was challenged on that. It is not a question of there being no subsidy and help for the gas industry, as he knows well. When the hon. Member for Hammersmith makes his usual attack on the farming industry, he should remember that the current subsidy to the gas industry—or, to put it in a better way, to gas consumers—is about £10 million a year. Since 1974, £42 million of subsidy has been put into towns gas in Northern Ireland, so there has been no shortage of money for the industry.

Mr. Soley: Who is attacking the farming industry? I am in favour of subsidies. I am simply asking the Minister to be consistent.

Mr. Butler: Not only are we heavily subsidising the town gas industry, but consumers of electricity are being subsidised to the tune of £60 million a year. That must be borne in mind when considering the pricing policy that might operate between now and the introduction of natural gas.
Hon. Members referred to the use of local contractors and other firms. We are endeavouring to see that, where possible, that is done, and I agree that it has an important impact on jobs. It is not fair to say that Northern Ireland civil servants deliberately seek to exclude Northern Ireland companies. I am sure that that is far from the case. On the other hand, the hon. Member for Upper Bann asked for speed in bringing gas to the Province. If we are to seek speed combined with the satisfactory laying of the pipe, we must be certain of the competence of the firms that are involved. That is surely a first requisite.
I do not think that we could proceed any quicker. We are seeking in only two years to construct a pipeline and to get the gas to the first consumers in Belfast in the autumn of 1985. That is a tight time scale. We are on target at present but there remains a great deal to be done. I recognise the need for action in the interim to ensure those who would be using gas are confident of its arrival.
The hon. Member for Newry and Armagh spoke of landowners' anxieties. There are established procedures for dealing with compensation problems. In statutory terms, the rights of persons affected by vesting orders are translated into financial claims on the compensation front. Arrangements are made to provide so-called accornmodation works either in lieu or part settlement of claims. For the natural gas project, arrangements are being made for the restoration of farmland in conjunction with the commissioner of valuation.
We need the full support of the landowners through whose land the pipeline will pass. The surveying team, which has covered a considerable distance of the land through which the pipeline will pass, is generally finding a good welcome from landowners and sympathy with that which is proposed.
This short debate has illustrated the importance of the project for Northern Ireland and the real interest and concern on the part of representatives of the Province who are members of this place. I do not think that anything has been said that does other than support me in recommending the draft order to the House.
Question put and agreed to.
Resolved,
That the draft Gas (Amendment) (Northern Ireland) Order 1984, which was laid before this House on 9th April, be approved.

BUSINESS OF THE HOUSE

Ordered,

That, at to-morrow's sitting, the Motion relating to House of Commons (Services) may be proceeded with, though opposed, until half-past Eleven o'clock or for one and a half hours after it has been entered upon, whichever is the later, and Mr. Speaker shall then put any Question necessary to dispose of proceedings thereon, if not previously concluded.—[Mr. Boscawen.]

Liverpool (Finance)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Boscawen.]

Mr. Eddie Loyden: I make no apology at this late hour for raising once again that which has been described as the crisis in Liverpool. It is important that I set out what I consider to be some of the essential background to the situation in Liverpool for the general background influences considerably what is happening in Liverpool.
At one time Liverpool was a thriving port with its main local economy based upon shipbuilding, ship repairing, the docks industry, warehousing, distribution and commerce. Even in the so-called good years the city has always had twice the national average of unemployment. That is indicative of the endemic problem in Liverpool and in many other old industrial conurbations.
I do not suggest that the crisis in Liverpool has developed in the past 12 months. Since 1979, the pace of decline has accelerated. Since that year there has been a loss of 40,467 jobs, either through closures or declared redundancies, affecting almost every aspect of industry in the area. I cite examples of jobs lost in the following industries: 12,120 in food and drink; 3,441 in vehicle manufacturing; 2,826 in electrical engineering; 1,444 in clothing and footwear; 8,039 in transport and communication; 1,875 in paper and printing; 2,546 in the distributive trades; and 50 in an employment bureau of the Department of Employment. No sector of industry has escaped the avalanche that has devastated employment and the industrial base, leaving behind misery and poverty among the unemployed, the old and the young, whose expectations of Government and society have hit rock bottom.
Unemployment at 20 per cent. hides the real problem of city areas with youth unemployment as high as 70 or 80 per cent. Young people have left school and have suffered years of unemployment. Many marry and start a family without ever having a proper job. That has contributed largely to the fact that crime and drugs have become predominant in the lives of many young people. Their despair and hopelessness draw them into the drug and crime cycle. Full credit should be given to the youth section of the Labour party in recruiting young people into more constructive activities and in fighting for a decent life for future generations.
As the co-chairman of the campaign committee, I assure the Parliamentary Under-Secretary of State that the Labour movement in Liverpool does not see the Liverpool city council crisis in isolation. The triple alliance of the district Labour party, the Liverpool and Merseyside Association of Trade Councils and the Labour group have spelled out the message at every meeting, demonstration and rally in Liverpool. The message is that the attacks on miners, health services and trade unions and redundancies and closures are part and parcel of a single strategy to defeat the Labour trade union movement and to claw back the victories of the last century won by struggles of organised labour. I hope that the next Labour Government will act with the same determination in the interests of the working classes that this Government have shown in the interests of the classes that they represent.
I do not want to deal in detail with the figures bandied about for the budget of the Liverpool city council. The Secretary of State has been given full documentation of the budget proposals set out by the Labour-controlled city council. The budget clearly spelt out the fact that the problems facing Liverpool cannot be solved in isolation by the Liverpool city council.
The traditional role of local authorities has been carried out in the areas of unemployment, housing, education and care of the old and in provision for the sick, disabled and the young. The Government have changed the ground rules dealing with local government. Since 1979, they have set a course of confrontation with local authorities, trade unions, the unemployed and those on benefits.
At its 1980 policy conference, the Liverpool Labour party and the Labour group on the council decided on policies based on enough is enough. They had to do something in response to the Government's confrontational policies. They may be judged at some stage to be criminal acts. Those criminal acts of which Liverpool city council may be accused include the saving of jobs, the alleviation of some of the misery suffered by families on the housing waiting list and the maintenance of levels of service which are still inadequate against the backcloth of misery and poverty that has been attendant in the city for over a century.
Those policies were put to the electorate in 1983 and they brought Labour to power. I do not believe that in the city's history the facts have been brought home to the people as they have over the past two or three years. There has never been the conscious response from the electorate in Liverpool that we see at the moment.
I do not believe that we can fiddle with the alternatives that have been suggested in the city by the Liberals and the Tories. Both budgets put forward by them at the last meeting of Liverpool city council were defeated, and the city treasurer said that while they might be legal, they were impractical and did not deal with the base problem that the city faces.
An article in The Sunday Times said that the Government intend to introduce legislation hurriedly to send commissioners into Liverpool to take over local authority responsibilities. Such action would be abortive because I believe, having spent my working life in Liverpool, that there would no co-operation from the local authority unions with the commissioner or any other action the Government imposed on Liverpool in place of the elected local authority. we must take The Sunday Times suggestion seriously. I do not believe that the Government would demur in bringing a commissioner or other authority into the city to undermine the confidence in the Labour administration and abort its actions to solve some of the problems that the city faces.
The policies that the Labour party has been pursuing were put to the electorate in 1983 and brought Labour to power despite the fact that a vicious campaign had been carried out against the leadership of the Labour movement in the city by the Liberals and the Tories. The accusation made was that there was a militant-led confrontation. Every poster in the city published by the Liberal party said the choice was between Marxism and the Liberals. The Liberal party awakened people to the problems that the city faces.
No fiddling with the problems that face Liverpool will achieve a solution. The electorate's conscious response to the Labour party illustrates the people's growing

awareness of the problems that they face and the need for a solution. I do not believe that commissioners, or any other suggestion, will bring about a solution to the problems facing the city. They will be seen as forms of intimidation against the elected representatives who have been legitimately and lawfully elected by the people of the city on a mandate and policy that are seen by the Labour party in the city as the only way forward. There is evidence of ever-growing support of the people of Liverpool for the policies being pursued by the Labour party.
I believe this is so because Liverpool traditionally has been an area of high unemployment. People recognise that there is something basically wrong in a society that can have something like 3·5 million to 4 million people thrown on the scrap heap, and where young people have no opportunities or future prospects. The cumulative effect of those things has meant that people are looking for more positive ideas. They are seeking ways out of their dilemma. Nothing that has been said by the Government gives them any comfort about their future security.
It is important that the House should understand that we are not dealing with an isolated problem. I do not believe that the situation in Liverpool is applicable only to Liverpool. There is evidence that throughout the old industrial regions a major problem is emerging that the Government apparently intend to disregard. They will do so not only at their peril but at the peril of the future of society.
Any attempt by the Government to intimidate the leadership of Liverpool city council — the Liverpool Echo reported only today that writs will be served against the leadership in the near future—can only exacerbate the situation. The Government must recognise that what is happening in Liverpool is merely a foretaste of what will happen in other authorities as the rate-capping legislation begins to bite into their rights to determine, according to their understanding, the needs of the people they represent.
There is growing support for Liverpool's actions throughout the Labour and trade union movement. It may well determine the outcome of the next general election. People are fully aware that the democracy that has been built up over many years of struggle by the trade union and Labour movement and conceded by concessional capitalism is now at an end and it is the intention of the Government to claw back the victories that have been achieved, not only in terms of the living standards of the working people but of the rights and privileges that they have gained after years of struggle.
This is evidenced, for instance, in the Government's attitude towards the trade union movement. They see that movement as a shield against their excesses. It is significant that the Government have made it a major priority to see that the trade union movement is weakened so that they can carry out policies that will further endanger the living standards, liberties and freedoms of working class people. This is one of the reasons why the Government should be made aware of the situation that prevails in Liverpool.
I speak as the chairman of the campaign committee which is a triple alliance between the trades councils, the district Labour party and the Labour group on the city council. At every meeting and demonstration it is pointed out that Liverpool cannot be viewed in isolation. It cannot be isolated from the attacks by the Government against the working class in terms of trade union legislation, the


miners' struggle, the attack on the Health Service and on local authority rights and responsibilities. The Government have made a frontal attack on the rights and privileges of the working class.
Our people are being made aware that Liverpool cannot struggle in isolation. I see the possibility of a major confrontation if the Government do not reconsider their position in relation to cities such as Liverpool.
All that Liverpool wants to do is to alleviate problems resulting from a system that has caused a decline in private enterprise. About 24,000 jobs in the docks industry have been reduced to fewer than 3,000. The 20,000 and more jobs in shipbuilding and engineering have been reduced to fewer than 3,000. Closure after closure has taken place in warehousing and commerce. About 40,000 jobs have been lost since 1979. The difficulties are increased by an aging population and major social problems.
The council wants to protect jobs, to maintain levels of service, and to ensure that the aging population is cared for. It wants to ensure that the 22,000 people on the housing waiting list have some hope of being housed. The Government consider such aims amount to acts of a criminal nature. That is indicative of what the Government, with their doctrinaire attitude are prepared to impose upon local authorities.
The Government cannot rest on the idea that in the postelection period, if Labour wins in Liverpool — as I believe that they will—they can move in and resolve the problem as they see fit. There will be a long confrontation of a kind that has not been seen for many years. Other local authorities will see that their common interest is served by the defence displayed in Liverpool, by the trade union movement and the electors. We are seeing the transformation of working class attitudes towards local authorities which look after their daily lives by providing services, activities and amenities.
The Government must say clearly what they intend to do. Liverpool is part of our country. Its population forms part of our country and the people are entitled, during a time of mass unemployment, multi-deprivation and lack of housing, to say that they want the Government to consider what they have done for Liverpool. I do not want the Minister to regurgitate figures about the amount of money that has gone to Liverpool. Figures in such an argument are meaningless. If the Minister saw the housing and listened to unemployed and elderly people there, he would have the evidence.
The city's problems cannot be cut off from those that face our society. The crunch has now come. The election of 3 May might well produce a Labour majority on the council. Its mandate will therefore have been confirmed. The future of local democracy will then be in question. The problems cannot be resolved by Liverpool city council. There is an urgent need for the Government to reconsider and tell Liverpool that there must be a judgment about the effects caused by the £120 million that has been taken away from the council in the past five years and the 44,000 jobs. Such factors—the depletion of services and the aging population — must be considered with a sensitivity and understanding that the Government apparently lack. If they do not do that, the confrontation will be longer-term and will result in a host of local authorities joining Liverpool in telling the Government of

the right of local government to determine the needs of the people it represents and to fulfil its promises. That will become a major feature of local government elections.
I hope that the Minister will not attempt to argue on the basis of the amount of money that Merseyside development corporation and other agencies have received. It has not found its way to the city council and enabled it to tackle the problems. I hope that the Minister will come clean and tell the people of Liverpool that the Government will reconsider, will not take a global attitude to local authorities, and that local authorities in the circumstances of Liverpool will be given consideration, not on the basis of special treatment, but on the basis that they will get back the money that the Government have filched so that they can perform the responsibilities that they were elected to perform.

The Parliamentary Under-Secretary of State for the Environment (Mr. William Waldegrave): The hon. Member for Liverpool, Garston (Mr. Loyden) has given me little time in which to reply and therefore cannot expect me to answer all his points. Many of them have already been answered in the House in reply to a debate proposed by the hon. Member for Liverpool, Mossley Hill (Mr. Alton) just over one month ago. I believe that the hon. Gentleman had to withdraw from a recent debate as a result of family illness and I know that the House will wish to offer him sympathy on that score.
The prospect for Liverpool still looks bleak, because the arguments that the hon. Gentleman adduced do not seem to show any understanding of the real circumstances in which Liverpool finds itself. He said that I should not regurgitate facts about the resources that the Government have sent to the Merseyside region in the past few years. He has given me little time for such regurgitation, but the resources have been substantial. In the past three years, expenditure on Merseyside under my Department's main programmes has reached £650 million. That includes about £140 million which has been directed specifically through the urban programme and the Merseyside development corporation.
The Department of Trade and Industry has given an average of £110 million a year in the past three years to companies within the Merseyside special development area. The Mersey Docks and Harbour Company has received a total of £134 million. Those resources are not trivial. They are a considerable contribution from taxpayers and ratepayers in the rest of the country to a region that everyone in the House will recognise has historical problems that cannot be gainsaid. No one would want to gainsay them.
Some of the figures bandied about, connected with the problems that face Liverpool and their origin, are false. The hon. Member for Mossley Hill suggested that in some sense Liverpool had lost £140 million of rate support grant since 1976–77, but he failed to say that comparisons over that period are entirely bogus, because in the period up to 1981–82, Merseyside's rate support grant was paid directly to its districts. I am afraid that the similar figure bandied about by the Labour group and the hon. Gentleman, of a £120 million rate support grant loss, does not stand up. It is based on wild assumptions about Government policy over the past four or five years being wholly different from what it was.
Liverpool city council has been asked to make savings since 1979, like every other council. It has not been asked to save more. There are 35 major spending authorities that face more demanding expenditure targets than Liverpool in 1984–85. Nearly two thirds of them have achieved single figure rate increases, and no authority has levied anything like the massive increase that Liverpool claims to need.
In the final minute left to me by the hon. Gentleman, I can say only that the consequences for employment in Liverpool, its future and confidence in it, if after the election the city council produced an illegal rate, having failed twice, unfortunately to reach a legal rate, would be absolutely catastrophic. Although the political leaders of

the council that landed it in that situation might find themselves heroes of one part of the Labour party—it would be only one part because the Leader of the Opposition and the official spokesman on these matters in the Opposition are against the course that is threatened — they would do terrible damage to the people of Liverpool. I hope that even now they will heed wiser counsel, draw back from that course, and seek to make a legal rate.

The Question having been proposed after Ten o'clock and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at seventeen minutes past One o'clock.